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Can you perceive our system of government operates? Maybe similar to this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills become law. Legislation are enforced by the courts. That's it. Well, that used to be how it once functioned. Those days are over.

The Advent of Shadow Courts

Today, overseas companies, and the wealthy individuals that control them, have the power to sue nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. The cases take place behind closed doors. Unlike our courts, these panels allow no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even enterprises operating from this country. Access is granted only to entities based overseas.

When a secret court determines that a law or policy could harm the corporation’s projected profits, it can award financial penalties of vast sums, potentially billions.

This compensation represent not tangible damages but funds the panel members determine the company could potentially have made. The state may have to rescind the measure. It becomes discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of disputes are being brought, as firms learn from each other, and private equity bankroll lawsuits in return for a share of the settlements. The consequence? National sovereignty and democratic governance are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the rulings enacted by legislatures is that this provision has been inserted – without democratic mandate, and frequently under an atmosphere of total confidentiality – within trade treaties.

A Real-World Instance: The Whitehaven Coal Mine

Last year, a conservation group secured a significant win at the senior court. The judge determined that plans to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The Labour government subsequently revoked the permission the Tories had approved. Today, this success could be compromised by an offshore tribunal accountable to no one but the entities petitioning it.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands initiated proceedings challenging the UK government. The previous week a arbitration panel in the US capital was set up to consider the case.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have little idea how much this sum represents. Who is acting on its behalf challenging the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The administration enacts a policy, the domestic court upholds it, then a international entity disputes it through an secretive arbitration panel, and a member of our parliament represents its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. Details are little of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has started suing another European state on these grounds, claiming $16bn: equivalent to half of government’s yearly budget. Part of the legal team acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Trade specialists argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

We were assured that such things were not possible. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” A consultant on this issue accused activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by these lawsuits. Warnings that “as corporations begin to understand the authority they now possess, they will shift their focus from the weak nations to the wealthy nations” were greeted by widespread derision.

That prediction has now materialised. This year, oil and gas and extraction companies have filed a record number of cases against nations rich and poor, opposing – similar to the UK mine – government attempts to stop climate breakdown. Companies have to date won $114bn by using ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP