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What is your reckon our system of government works? Perhaps similar to this. The public votes for MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that was how it once functioned. Not anymore.

The Emergence of Shadow Courts

In the modern era, foreign corporations, or the billionaires who own them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are held behind closed doors. Differing from national judiciaries, these panels allow no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, including enterprises headquartered in this country. The door is open exclusively to corporations registered abroad.

When a secret court finds that a law or policy could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These sums constitute not tangible damages but compensation the arbitrators decide the company could potentially have made. The state may have to drop the legislation. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being brought, as companies take cues from each other, and hedge funds bankroll lawsuits in return for a share of the awards. The consequence? Sovereignty and popular rule are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices taken by legislatures is that this provision has been written – without democratic mandate, and typically amid a climate of total confidentiality – into international trade agreements.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice determined that plans to excavate the first new deep coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have had no impact on our carbon budgets. The new government subsequently revoked the consent the Tories had approved. Now, this success is under threat by an foreign court answering to no one but the corporations petitioning it.

During August, a corporate entity whose ultimate owners reside in the tax haven initiated proceedings challenging the UK government. Last week a arbitration panel in Washington DC was set up to hear it.

The claimant is suing the UK for the profits it would have generated if the mine had received permission to go ahead. We have no clear indication how much this might be. Who is acting on its behalf against the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the high court validates it, then a overseas corporation challenges it through an secretive arbitration panel, and a elected official acts on its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case so far, but it is highly possible that he’ll use the tribunal to contest the sanctions the UK enacted against him following the invasion of Ukraine. He has already filed a claim against Luxembourg with similar intent, claiming a colossal sum: an amount representing half state's annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, wife of the previous PM.

Legal experts argue that the EU’s delay in leveraging immobilised state funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

We were assured that these events wouldn’t happen. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” A consultant on this issue accused campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states needed to fear such legal actions. Warnings that “when companies grasp the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by general mockery.

That prediction has now materialised. In the current period, fossil fuel and mining firms have lodged a unprecedented number of claims against nations rich and poor, challenging – as in the case of the UK mine – government attempts to halt climate breakdown. Corporations have so far won vast sums via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP