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How do you reckon our political system works? Maybe something like this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills become law. The law are enforced by the courts. End of story. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Shadow Courts

Nowadays, overseas companies, along with the oligarchs behind them, have the power to sue nation states for the laws they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are conducted behind closed doors. Unlike our courts, these panels grant no opportunity to appeal or judicial review. The general public cannot take a case to them, just as our government, or even businesses based in this country. They are open solely for businesses based overseas.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it can award damages of hundreds of millions, even billions.

This compensation represent not actual losses but funds the panel members determine the company could potentially have made. The state may have to abandon its policy. It is hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A System Running Rampant

Record numbers of legal actions are being initiated, as corporations observe each other, and private equity finance suits for a share of a share of the awards. The outcome? Sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the decisions enacted by legislatures is that this stipulation has been written – absent public approval, and often in conditions of extreme secrecy – inside international trade agreements.

A Specific Example: The Whitehaven Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The judge determined that schemes to open the first new deep coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine could have no consequence on national carbon targets. The Labour government subsequently revoked the permission the previous administration had issued. Now, this legal outcome faces being overturned by an foreign court answering to exclusively the corporations filing the suit.

Last August, a company whose ultimate owners reside in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a arbitration panel in the US capital was established to adjudicate on it.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to proceed. We have little idea how much this sum represents. Who is serving as its counsel against the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government passes a law, the national judiciary supports it, then a foreign company contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

On the same day that the panel on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case so far, but it is highly possible that he may employ the arbitration process to fight the penalties the UK levied against him after the war in Ukraine. He has already initiated proceedings against another European state on these grounds, demanding a colossal sum: an amount representing half government’s annual revenue. Part of the lawyers acting for him in that case? the wife of a former prime minister, married to the former British prime minister.

Trade specialists believe that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine desperately needs.

False Assurances and Escalating Threats

Politicians promised that these scenarios were not possible. Years ago, a government leader, championing the biggest and most dangerous of all these agreements, told us: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” An adviser on this matter accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “once firms begin to understand the power bestowed upon them, they will turn their attention from the weak nations to the strong ones” were greeted by general mockery.

That warning has now materialised. In the current period, oil and gas and mining firms have initiated a historic level of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – state efforts to stop global warming. Companies have thus far won $114bn by using ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP