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What is your perceive our system of government functions? Perhaps similar to this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that was how it operated in the past. Not anymore.

The Rise of Shadow Courts

In the modern era, international firms, along with the oligarchs who own them, have the power to sue governments for the laws they pass, at offshore tribunals staffed by corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these panels provide no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, including businesses headquartered in this country. They are open solely for corporations based overseas.

When a secret court rules that a legislative action might diminish the corporation’s expected profits, it may order compensation of hundreds of millions, even billions.

These awards are based not on real financial harm but money the panel members decide the company could potentially have made. The government could be forced to drop the legislation. It becomes hesitant to passing future laws of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being initiated, as companies learn from each other, and hedge funds finance suits for a share of a cut of the takings. The outcome? Democratic sovereignty and democracy are now too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the decisions taken by elected bodies is that this provision has been written – without public consent, and typically amid an atmosphere of total confidentiality – inside trade treaties.

A Concrete Instance: The Cumbrian Coalmine

Twelve months ago, a conservation group won a great victory at the senior court. The justice found that proposals to dig the first new deep coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The incoming administration subsequently revoked the consent the Tories had issued. Today, this victory is under threat by an secret arbitration panel answering to no one but the corporations bringing the case.

In August, a company whose beneficial owners are located in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in Washington DC was established to consider the case.

The claimant is suing the UK for the money it might have made if the mine had been allowed to commence operations. We have no idea how much this might be. What legal team is acting on its behalf in opposition to the British government? A member of parliament, and former attorney-general in the previous government, that great patriot the MP. The state passes a law, the national judiciary upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a sitting MP represents its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it seems likely that he’ll use the arbitration process to contest the restrictions the UK levied against him following the invasion of Ukraine. He has initiated proceedings against a small nation with similar intent, claiming $16bn: equivalent to half of government’s yearly income. Among the lawyers representing him there? the wife of a former prime minister, married to the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its financial support package arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over sovereign states could be blocking the funds Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that these scenarios were not possible. Previously, a former prime minister, advocating for the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An adviser on this issue accused critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by ISDS claims. Predictions that “once firms grasp the power they now possess, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat has now materialised. In the current period, fossil fuel and resource corporations have filed a unprecedented number of suits against nations rich and poor, challenging – like the example of the UK mine – government attempts to prevent global warming. Firms have thus far won $114bn via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP