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How do you understand our political system works? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills become law. The law is upheld by the courts. End of story. Yet, that’s how it once functioned. No longer.

The Advent of Shadow Courts

In the modern era, international firms, along with the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. The cases take place behind closed doors. In contrast to domestic courts, these tribunals provide no avenue for appeal or judicial review. The general public are unable to file a case to them, just as our government, including companies based in this country. They are open solely for corporations registered abroad.

If a tribunal finds that a legislative action might diminish the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These sums represent not real financial harm but money the panel members determine the company would perhaps have made. The state may have to abandon its policy. It becomes deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A System Running Rampant

Unprecedented levels of legal actions are being brought, as corporations take cues from each other, and private equity bankroll lawsuits in exchange for a portion of the settlements. The consequence? Sovereignty and democratic governance are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede a country's own laws and the choices taken by elected bodies is that this stipulation has been inserted – absent public approval, and typically amid conditions of extreme secrecy – within trade treaties.

A Real-World Instance: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The judge found that proposals to open the first new deep coal mine in the UK for a generation, in Cumbria, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The new government then withdrew the consent the former government had approved. Currently, this victory could be compromised by an secret arbitration panel reporting to only the companies filing the suit.

Last August, a company whose final controllers reside in the tax haven filed a lawsuit challenging the UK government. The previous week a tribunal in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to proceed. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel against the UK administration? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the national judiciary upholds it, then a overseas corporation challenges it through an undemocratic private court, and a elected official acts on its behalf.

A Sanctions Case

On the same day that the tribunal on the coal mine dispute was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already filed a claim against a small nation with similar intent, demanding $16bn: equivalent to half of nation's annual revenue. Among the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists contend that the EU’s delay in utilising seized oligarchs' funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments could be blocking the finance Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and there has never been a problem in the past.” An adviser on this issue accused activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations should be concerned by ISDS claims. Cautionary notes that “when companies grasp the power they now possess, they will turn their attention from the poorer states to the wealthy nations” were dismissed with general mockery.

That prediction is now a reality. Recently, oil and gas and resource corporations have initiated a record number of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – state efforts to stop global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded the majority. That represents the combined GDP