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Can you reckon our system of government works? Perhaps along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills pass into law. Statutes is upheld by the courts. That's it. Yet, that used to be how it once functioned. No longer.

The Emergence of Shadow Courts

In the modern era, overseas companies, or the oligarchs behind them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are held in secret. Differing from national judiciaries, these bodies grant no right of appeal or judicial review. The general public cannot take a case to them, nor can our government, or even enterprises operating from this country. The door is open only to corporations operating from foreign soil.

If a tribunal finds that a law or policy may compromise the corporation’s expected profits, it may order financial penalties of vast sums, even billions.

These awards represent not tangible damages but compensation the tribunal officials decide the company might otherwise have made. The administration may have to rescind the measure. It is hesitant to introducing similar legislation in that area, worried about being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being filed, as companies take cues from each other, and private equity finance suits in exchange for a cut of the settlements. The consequence? National sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the decisions enacted by parliaments is that this provision has been incorporated – absent public approval, and typically amid an atmosphere of profound opacity – into bilateral investment treaties.

A Concrete Case: The UK Coalmine

Last year, activists achieved a major legal triumph at the senior court. The presiding officer determined that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on our carbon budgets. The new government subsequently revoked the consent the former government had approved. Currently, this victory could be compromised by an secret arbitration panel reporting to no one but the corporations bringing the case.

During August, a corporate entity whose ultimate owners are located in the tax haven filed a lawsuit against the UK government. The previous week a arbitration panel in the US capital was established to hear it.

This firm is litigating against the UK for the profits it would have generated if the mine had been allowed to go ahead. We have no clear indication how much this sum represents. What legal team is serving as its counsel challenging the British government? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary supports it, then a international entity disputes it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

The Russian Challenge

On the same day that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case so far, but it is highly possible that he may employ the tribunal to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, seeking sixteen billion dollars: half that state's yearly budget. Part of the legal team representing him there? Cherie Blair, spouse of the former British prime minister.

International law scholars contend that the EU’s hesitation in using frozen state funds as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that such things were not possible. In 2014, a senior politician, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” A consultant on this topic described critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by these lawsuits. Warnings that “as corporations begin to understand the authority bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were greeted by scepticism.

That prediction has now materialised. In the current period, oil and gas and mining firms have lodged a unprecedented number of suits against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to halt global warming. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP