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Can you perceive our system of government functions? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Statutes are enforced by the courts. That's it. However, that was how it used to work. Not anymore.

The Rise of Shadow Courts

In the modern era, international firms, or the wealthy individuals that control them, are able to litigate against nation states for the policies they pass, at secret arbitration panels composed of business advocates. The cases take place in secret. Differing from national judiciaries, these tribunals provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even businesses based in this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel rules that a government measure might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions, potentially billions.

This compensation constitute not tangible damages but funds the panel members conclude the company would perhaps have made. The government might be compelled to abandon its policy. It is hesitant to passing future laws of a similar nature, due to the risk of being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being initiated, as corporations learn from each other, and hedge funds bankroll lawsuits in return for a cut of the settlements. The outcome? Sovereignty and popular rule are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the choices made by elected bodies is that this clause has been written – without democratic mandate, and typically amid an atmosphere of total confidentiality – into trade treaties.

A Real-World Case: The Whitehaven Coal Mine

A year ago, activists won a great victory at the high court. The justice found that proposals to open the first deep coalmine in the UK for 30 years, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The new government later cancelled the permission the former government had issued. Now, this legal outcome is under threat by an offshore tribunal reporting to no one but the companies filing the suit.

Last August, a firm whose beneficial owners are located in the tax haven initiated proceedings against the UK government. The previous week a tribunal in the US capital was convened to adjudicate on it.

This firm is suing the UK for the revenue it might have made if the mine had been permitted to go ahead. Citizens have no idea how much this might be. Which individual is serving as its counsel in opposition to the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court upholds it, then a foreign company disputes it through an unaccountable private court, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case at present, but it appears probable that he will utilise the tribunal to contest the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation for this reason, demanding $16bn: half that government’s yearly income. Included in the legal team acting for him in that case? Cherie Blair, married to the former British prime minister.

Trade specialists argue that the EU’s delay in using frozen oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that such things wouldn’t happen. In 2014, a government leader, promoting the most significant and hazardous of all these agreements, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” An expert on this topic labelled critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies start to realise the influence bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat has now materialised. Recently, oil and gas and resource corporations have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Corporations have thus far won $114bn by using ISDS, of which oil majors have secured $84bn. That equates to the combined GDP