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Can you reckon our political system operates? It could be along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills become law. The law is maintained by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Emergence of Shadow Courts

Nowadays, international firms, and the oligarchs behind them, are able to litigate against governments for the policies they pass, at secret arbitration panels staffed by commercial attorneys. The cases take place away from public scrutiny. Differing from national judiciaries, these panels grant no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted solely for corporations registered abroad.

When a secret court finds that a legislative action could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions, potentially billions.

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

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as corporations take cues from each other, and hedge funds fund legal actions for a share of a portion of the takings. The outcome? National sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings enacted by legislatures is that this clause has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – into trade treaties.

A Real-World Instance: The Whitehaven Coalmine

A year ago, a conservation group won a great victory at the High Court. The justice found that proposals to dig the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have zero effect on our carbon budgets. The incoming administration later cancelled the consent the Tories had approved. Now, this success faces being overturned by an offshore tribunal reporting to exclusively the companies bringing the case.

Last August, a corporate entity whose ultimate owners are located in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in Washington DC was established to hear it.

The claimant is suing the UK for the profits it could have earned if the mine had been permitted to go ahead. We have little idea how much this could amount to. Who is serving as its counsel against the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a international entity challenges it through an undemocratic private court, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the tribunal on the mining lawsuit was established, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are little of the case at present, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK levied against him following the invasion of Ukraine. He has previously started suing another European state on these grounds, seeking a colossal sum: half that state's yearly income. Included in the legal team representing him there? Cherie Blair, married to the former British prime minister.

Legal experts believe that the EU’s delay in utilising seized state funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over sovereign states could be blocking the finance Ukraine critically depends on.

False Assurances and Mounting Threats

The public was told that these scenarios wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all such treaties, stated: “Britain has agreed to investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this topic accused campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Warnings that “once firms grasp the influence bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with scepticism.

That threat has now materialised. In the current period, energy and mining firms have lodged a historic level of claims against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – official measures to stop global warming. Companies have thus far won vast sums through ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP