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How do you reckon our system of government works? Perhaps similar to this. Citizens choose MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Well, that was how it used to work. No longer.

The Advent of Shadow Courts

Nowadays, foreign corporations, or the oligarchs who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels made up of business advocates. Such disputes are held behind closed doors. In contrast to domestic courts, these bodies allow no avenue for appeal or judicial review. The general public cannot take a case to them, nor can our government, or even enterprises based in this country. Access is granted exclusively to businesses registered abroad.

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

This compensation represent not actual losses but money the panel members conclude the company might otherwise have made. The administration may have to rescind the measure. It is deterred from introducing similar legislation along the same lines, for fear of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being filed, as companies observe each other, and investment funds fund legal actions in exchange for a cut of the takings. The consequence? Sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the rulings made by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under a climate of profound opacity – into bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer ruled that proposals to excavate the first major coal mine in the UK for 30 years, in northwest England, had been unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have no impact on national carbon targets. The new government then withdrew the licence the previous administration had approved. Today, this victory faces being overturned by an offshore tribunal reporting to only the entities bringing the case.

In August, a corporate entity whose ultimate owners are based in the Cayman Islands lodged a claim against the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

The claimant is litigating against the UK for the revenue it could have earned if the mine had received permission to commence operations. The public has no clear indication how much this might be. Who is representing it in opposition to the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The administration makes a decision, the high court upholds it, then a international entity disputes it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

The Russian Case

On the same day that the panel on the coalmine case was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case at present, but it appears probable that he may employ the ISDS mechanism to fight the restrictions the UK enacted against him following the invasion of Ukraine. He has already filed a claim against another European state for this reason, seeking sixteen billion dollars: half that government’s yearly income. Among the legal team representing him there? the wife of a former prime minister, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in utilising seized state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states might be preventing the money Ukraine urgently requires.

Empty Promises and Escalating Risks

We were assured that such things could not occur. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” A consultant on this topic described campaigners of “exaggeration … in reality, 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 “as corporations grasp the authority bestowed upon them, they will shift their focus from the weak nations to the developed economies” were dismissed with widespread derision.

That threat has come to pass. Recently, fossil fuel and mining firms have filed a unprecedented number of claims against nations rich and poor, contesting – like the example of the Cumbrian coalmine – government attempts to halt climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP