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How do you reckon our system of government works? It could be similar to this. We elect MPs. They legislate on bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that used to be how it once functioned. Those days are over.

The Advent of Shadow Courts

In the modern era, overseas companies, along with the billionaires that control them, are able to litigate against nation states for the regulations they pass, at private courts staffed by corporate lawyers. These proceedings are held in secret. Differing from national judiciaries, these panels provide no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even companies based in this country. The door is open solely for entities registered abroad.

When a secret court determines that a legislative action might diminish the corporation’s expected profits, it may order damages of vast sums, potentially billions.

These awards constitute not actual losses but compensation the panel members decide the company might otherwise have made. The administration may have to abandon its policy. It is hesitant to enacting future policies of a similar nature, due to the risk of facing litigation.

A System Running Rampant

Record numbers of cases are being initiated, as companies take cues from each other, and investment funds bankroll lawsuits in return for a portion of the takings. The result? National sovereignty and democracy are now too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the rulings taken by elected bodies is that this stipulation has been incorporated – without democratic mandate, and often in an atmosphere of profound opacity – into trade treaties.

A Concrete Example: The Cumbrian Coal Mine

Last year, a conservation group secured a significant win at the High Court. The judge ruled that schemes to open the first new deep coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have had no consequence on our carbon budgets. The Labour government later cancelled the permission the Tories had issued. Currently, this victory faces being overturned by an secret arbitration panel accountable to only the entities petitioning it.

In August, a company whose beneficial owners are located in the Cayman Islands lodged a claim against the UK government. The previous week a tribunal in the United States was set up to consider the case.

The company is suing the UK for the profits it might have made if the mine had been allowed to commence operations. The public has no clear indication how much this might be. What legal team is representing it in opposition to the UK administration? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a international entity challenges it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

The Russian Lawsuit

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it appears probable that he’ll use the arbitration process to challenge the sanctions the UK levied against him subsequent to the Russian aggression. He has previously started suing another European state for this reason, seeking a colossal sum: equivalent to half of nation's annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

International law scholars argue that the EU’s procrastination in utilising seized Russian assets as collateral for its financial support package arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over elected governments could be blocking the funds Ukraine urgently requires.

False Assurances and Mounting Threats

Politicians promised that such things could not occur. Previously, a former prime minister, advocating for the most significant and hazardous of all such treaties, told us: “The UK has signed trade agreement after trade deal and there has never been a issue in the past.” A consultant on this issue accused critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states needed to fear such legal actions. Warnings that “when companies start to realise the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with scepticism.

That warning is now a reality. In the current period, energy and extraction companies have initiated a record number of claims against nations rich and poor, opposing – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Corporations have to date won $114bn via ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP