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What is your reckon our system of government functions? Maybe similar to this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills become law. The law is upheld by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Courts

In the modern era, foreign corporations, or the billionaires behind them, are able to litigate against nation states for the laws they pass, at secret arbitration panels staffed by commercial attorneys. The cases are held behind closed doors. Unlike our courts, these bodies grant no avenue for appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even companies headquartered in this country. The door is open only to entities operating from foreign soil.

If a tribunal rules that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but compensation the tribunal officials determine the company could potentially have made. The state could be forced to drop the legislation. It is hesitant to enacting future policies in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of legal actions are being brought, as companies observe each other, and investment funds finance suits in exchange for a portion of the takings. The result? Sovereignty and popular rule are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the choices taken by legislatures is that this clause has been inserted – without public consent, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The Cumbrian Coalmine

Last year, a conservation group secured a significant win at the High Court. The justice found that plans to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have zero effect on our carbon budgets. The incoming administration later cancelled the consent the former government had granted. Today, this legal outcome could be compromised by an offshore tribunal reporting to exclusively the corporations bringing the case.

During August, a firm whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. Recently a dispute settlement body in the US capital was set up to consider the case.

This firm is suing the UK for the revenue it might have made if the mine had been permitted to proceed. We have no idea how much this could amount to. Who is acting on its behalf in opposition to the UK administration? An elected representative, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a international entity challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

The Russian Lawsuit

Concurrently that the court on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case to date, but it seems likely that he will utilise the ISDS mechanism to challenge the restrictions the UK levied against him following the invasion of Ukraine. He has already initiated proceedings against another European state for this reason, seeking a colossal sum: an amount representing half state's yearly budget. Among the legal team representing him there? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s hesitation in leveraging immobilised state funds as security for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Growing Risks

Politicians promised that these scenarios were not possible. Years ago, a senior politician, advocating for the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade deal upon trade deal and we have never seen a case in the past.” A consultant on this topic described activists of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear such legal actions. Cautionary notes that “when companies begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with general mockery.

That warning is now a reality. In the current period, fossil fuel and mining firms have lodged a record number of claims against nations both wealthy and developing, opposing – similar to the Whitehaven project – government attempts to halt climate breakdown. Corporations have so far won vast sums via ISDS, of which energy giants have secured $84bn. That represents the combined GDP