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Can you understand our system of government works? Maybe along the lines of this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills become law. Statutes are enforced by the courts. That's it. Yet, that used to be how it used to work. No longer.

The Rise of Shadow Courts

In the modern era, international firms, and the billionaires that control them, have the power to sue governments for the policies they pass, at private courts staffed by commercial attorneys. Such disputes are held away from public scrutiny. Unlike our courts, these tribunals allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, including companies based in this country. Access is granted solely for corporations based overseas.

Should an arbitration panel finds that a government measure could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These awards constitute not real financial harm but money the panel members decide the company could potentially have made. The government might be compelled to drop the legislation. It is deterred from enacting future policies of a similar nature, worried about facing litigation.

A System Running Rampant

Unprecedented levels of legal actions are being filed, as companies take cues from each other, and investment funds fund legal actions in exchange for a share of the awards. The consequence? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the choices taken by legislatures is that this clause has been inserted – without democratic mandate, and often in a climate of total confidentiality – into trade treaties.

A Concrete Example: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the high court. The presiding officer found that proposals to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine would have zero effect on climate commitments. The new government subsequently revoked the consent the former government had issued. Today, this success is under threat by an offshore tribunal answering to no one but the entities petitioning it.

Last August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings against the UK government. The previous week a tribunal in Washington DC was established to hear it.

The claimant is suing the UK for the revenue it would have generated if the mine had received permission to proceed. The public has little idea how much this could amount to. What legal team is acting on its behalf against the UK administration? A member of parliament, and former attorney-general in the previous government, that great patriot the MP. The administration makes a decision, the national judiciary supports it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case at present, but it appears probable that he may employ the tribunal to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has already started suing a small nation on these grounds, claiming a colossal sum: an amount representing half nation's annual revenue. Part of the legal team representing him there? a prominent lawyer, wife of the ex-UK leader.

Legal experts argue that the EU’s hesitation in using frozen Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine urgently requires.

Empty Promises and Growing Costs

Politicians promised that these scenarios wouldn’t happen. Years ago, a senior politician, championing the largest and riskiest of all such treaties, stated: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” An expert on this issue labelled campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries needed to fear these lawsuits. Warnings that “once firms start to realise the power they now possess, they will turn their attention from the poorer states to the strong ones” were met with general mockery.

That warning has come to pass. In the current period, oil and gas and extraction companies have lodged a historic level of suits against nations rich and poor, opposing – like the example of the Whitehaven project – state efforts to prevent climate breakdown. Companies have thus far won $114bn via ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP