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How do you reckon our system of government operates? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that’s how it used to work. Not anymore.

The Advent of Shadow Courts

Today, international firms, or the oligarchs that control them, can sue governments for the policies they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held away from public scrutiny. Differing from national judiciaries, these tribunals provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted only to entities registered abroad.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These awards constitute not real financial harm but money the tribunal officials decide the company would perhaps have made. The government may have to drop the legislation. It becomes deterred from enacting future policies along the same lines, worried about incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of disputes are being filed, as corporations learn from each other, and investment funds finance suits in return for a portion of the settlements. The result? Democratic sovereignty and democracy are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the rulings enacted by legislatures is that this clause has been inserted – absent public approval, and typically amid conditions of total confidentiality – within bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the High Court. The judge found that plans to open the first deep coalmine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the licence the previous administration had approved. Today, this legal outcome is under threat by an foreign court answering to no one but the entities petitioning it.

In August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. Last week a dispute settlement body in the United States was established to hear it.

The company is suing the UK for the money it might have made if the mine had received permission to proceed. Citizens have no clear indication how much this sum represents. Who is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The administration passes a law, the national judiciary upholds it, then a overseas corporation contests it through an unaccountable arbitration panel, and a elected official represents its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case at present, but it seems likely that he’ll use the ISDS mechanism to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg on these grounds, claiming sixteen billion dollars: half that nation's yearly budget. Included in the counsel representing him there? Cherie Blair, married to the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its financial support package stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over sovereign states might be preventing the funds Ukraine critically depends on.

Misleading Claims and Escalating Risks

The public was told that these scenarios wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, stated: “The UK has signed investment treaty upon trade deal and there has not been a issue in the past.” A consultant on this issue described activists of “alarmism … in reality, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “as corporations start to realise the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were met with widespread derision.

That prediction has now materialised. This year, fossil fuel and resource corporations have initiated a historic level of suits against nations rich and poor, challenging – as in the case of the Whitehaven project – state efforts to prevent environmental catastrophe. Corporations have so far won vast sums via ISDS, of which oil majors have obtained the majority. That equates to the combined GDP