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What is your perceive our system of government functions? It could be similar to this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. End of story. Yet, that was how it used to work. Those days are over.

The Emergence of Shadow Courts

Nowadays, international firms, along with the billionaires behind them, can sue governments for the regulations they pass, at offshore tribunals composed of business advocates. The cases are held in secret. In contrast to domestic courts, these tribunals provide no right of appeal or legal review. The general public cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open solely for corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s projected profits, it may order compensation of vast sums, running into billions.

This compensation constitute not real financial harm but money the tribunal officials conclude the company would perhaps have made. The government may have to rescind the measure. It becomes hesitant to enacting future policies along the same lines, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of legal actions are being brought, as corporations take cues from each other, and hedge funds fund legal actions in return for a portion of the awards. The outcome? Sovereignty and democracy are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the decisions taken by parliaments is that this clause has been written – without public consent, and typically amid a climate of profound opacity – inside trade treaties.

A Real-World Example: The UK Coal Mine

Last year, environmental campaigners won a great victory at the High Court. The presiding officer found that plans to dig the first major coal mine in the UK for three decades, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no impact on national carbon targets. The Labour government then withdrew the permission the previous administration had issued. Currently, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the corporations filing the suit.

During August, a company whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. The previous week a dispute settlement body in Washington DC was set up to hear it.

The company is litigating against the UK for the profits it would have generated if the mine had been allowed to commence operations. We have little idea how much this sum represents. Which individual is serving as its counsel against the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the high court upholds it, then a foreign company contests it through an undemocratic private court, and a sitting MP represents its behalf.

A Sanctions Case

Concurrently that the panel on the coalmine case was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he may employ the tribunal to challenge the penalties the UK enacted against him after the war in Ukraine. He has filed a claim against Luxembourg with similar intent, demanding a colossal sum: equivalent to half of government’s yearly income. Included in the legal team acting for him in that case? a prominent lawyer, married to the ex-UK leader.

Legal experts believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine desperately needs.

Empty Promises and Mounting Costs

Politicians promised that these events could not occur. Previously, a senior politician, advocating for the most significant and hazardous of all these agreements, stated: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” An adviser on this matter accused activists of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Warnings that “when companies start to realise the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with scepticism.

That warning has now materialised. In the current period, oil and gas and mining firms have filed a unprecedented number of claims against nations both wealthy and developing, contesting – like the example of the UK mine – official measures to halt global warming. Corporations have to date won vast sums via ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP