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How do you reckon our system of government functions? It could be similar to this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Rise of Shadow Courts

In the modern era, overseas companies, or the wealthy individuals behind them, can sue nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes take place behind closed doors. In contrast to domestic courts, these bodies provide no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even companies based in this country. The door is open only to corporations registered abroad.

If a tribunal determines that a government measure could harm the corporation’s anticipated profits, it may order compensation of hundreds of millions, running into billions.

These sums are based not on real financial harm but compensation the arbitrators determine the company could potentially have made. The state might be compelled to rescind the measure. It is discouraged from enacting future policies of a similar nature, due to the risk of being sued.

A System Spiralling Out of Control

Record numbers of cases are being filed, as firms observe each other, and hedge funds fund legal actions for a share of a cut of the settlements. The consequence? National sovereignty and democratic governance are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the decisions taken by legislatures is that this clause has been written – without public consent, and frequently under conditions of profound opacity – inside international trade agreements.

A Specific Case: The Cumbrian Coalmine

Last year, activists secured a significant win at the high court. The presiding officer found that schemes to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have no consequence on national carbon targets. The Labour government then withdrew the consent the former government had approved. Now, this legal outcome could be compromised by an offshore tribunal reporting to only the entities filing the suit.

In August, a company whose final controllers reside in the tax haven filed a lawsuit against the UK government. The previous week a arbitration panel in Washington DC was established to consider the case.

The claimant is suing the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this might be. Who is representing it in opposition to the state? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a international entity contests it through an undemocratic private court, and a member of our parliament represents its behalf.

An Oligarch's Case

Concurrently that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case to date, but it appears probable that he may employ the arbitration process to challenge the restrictions the UK levied against him after the Russian aggression. He has initiated proceedings against a small nation with similar intent, demanding sixteen billion dollars: half that state's yearly income. Among the lawyers representing him there? a prominent lawyer, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in utilising seized state funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Mounting Costs

Politicians promised that these scenarios were not possible. Previously, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An expert on this matter accused activists of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “as corporations begin to understand the influence they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were met with widespread derision.

That warning has come to pass. This year, energy and extraction companies have filed a unprecedented number of suits against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – state efforts to stop climate breakdown. Corporations have to date won vast sums through ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP