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How do you understand our system of government functions? Perhaps something like this. We elect MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Shadow Courts

Today, overseas companies, or the oligarchs who own them, can sue nation states for the laws they pass, at secret arbitration panels made up of commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these bodies grant no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including enterprises based in this country. They are open exclusively to entities registered abroad.

When a secret court finds that a legislative action may compromise the corporation’s projected profits, it may order financial penalties of vast sums, even billions.

These awards constitute not actual losses but compensation the arbitrators determine the company would perhaps have made. The government might be compelled to rescind the measure. It will be discouraged from introducing similar legislation of a similar nature, for fear of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as companies observe each other, and private equity fund legal actions for a share of a share of the awards. The outcome? National sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the decisions taken by elected bodies is that this provision has been written – without public consent, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Specific Instance: The UK Coal Mine

Twelve months ago, activists achieved a major legal triumph at the senior court. The justice determined that schemes to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have zero effect on national carbon targets. The Labour government subsequently revoked the consent the former government had issued. Now, this victory faces being overturned by an secret arbitration panel answering to only the companies petitioning it.

Last August, a company whose beneficial owners are based in the offshore financial centre filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was convened to consider the case.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. The public has no idea how much this might be. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The government makes a decision, the high court supports it, then a overseas corporation challenges it through an secretive arbitration panel, and a sitting MP works for its behalf.

The Russian Lawsuit

Concurrently that the panel on the coal mine dispute was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it is highly possible that he may employ the tribunal to contest the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has started suing Luxembourg on these grounds, demanding $16bn: equivalent to half of government’s yearly income. Among the counsel on his side? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists believe that the EU’s procrastination in using frozen Russian assets as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over democratic administrations may be obstructing the funds Ukraine critically depends on.

Empty Promises and Escalating Threats

Politicians promised that such things wouldn’t happen. Previously, a government leader, advocating for the most significant and hazardous of all these agreements, stated: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” An adviser on this matter described activists of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear these lawsuits. Predictions that “once firms begin to understand the authority they now possess, they will turn their attention from the poorer states to the strong ones” were dismissed with widespread derision.

That warning has come to pass. Recently, oil and gas and mining firms have initiated a historic level of claims against nations across the economic spectrum, opposing – as in the case of the UK mine – state efforts to prevent climate breakdown. Corporations have so far won vast sums through ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP