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What is your reckon our system of government works? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Statutes is upheld by the courts. End of story. However, that’s how it used to work. Those days are over.

The Emergence of Shadow Courts

Today, foreign corporations, and the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at offshore tribunals staffed by corporate lawyers. These proceedings take place behind closed doors. Unlike our courts, these panels allow no right of appeal or judicial review. The general public are unable to file a case to them, just as our government, including enterprises headquartered in this country. They are open solely for businesses based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s projected profits, it can award compensation of hundreds of millions, running into billions.

These awards represent not real financial harm but compensation the arbitrators decide the company might otherwise have made. The government could be forced to drop the legislation. It will be hesitant to passing future laws of a similar nature, worried about facing litigation.

A Process Growing Exponentially

Historically high figures of disputes are being initiated, as corporations take cues from each other, and private equity finance suits in exchange for a portion of the takings. The outcome? Sovereignty and democracy are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings taken by parliaments is that this stipulation has been inserted – without democratic mandate, and often in conditions of profound opacity – inside international trade agreements.

A Specific Case: The Cumbrian Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The justice found that proposals to dig the first major coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have no impact on climate commitments. The new government then withdrew the licence the former government had granted. Now, this legal outcome could be compromised by an offshore tribunal reporting to exclusively the corporations petitioning it.

In August, a corporate entity whose final controllers are located in the tax haven initiated proceedings versus the UK government. Recently a dispute settlement body in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. What legal team is serving as its counsel in opposition to the UK administration? A member of parliament, and ex-law officer in the previous government, the noted patriot the MP. The administration enacts a policy, the high court validates it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case so far, but it is highly possible that he may employ the ISDS mechanism to contest the penalties the UK levied against him after the invasion of Ukraine. He has previously initiated proceedings against a small nation for this reason, demanding $16bn: an amount representing half government’s yearly budget. Included in the lawyers on his side? Cherie Blair, married to the previous PM.

International law scholars believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations might be preventing the finance Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that such things could not occur. Previously, a senior politician, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and there has never been a case in the past.” An adviser on this topic described activists of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations should be concerned by such legal actions. Warnings that “as corporations begin to understand the influence bestowed upon them, they will turn their attention from the poorer states to the strong ones” were greeted by scepticism.

That warning is now a reality. In the current period, oil and gas and extraction companies have lodged a record number of claims against nations rich and poor, contesting – like the example of the UK mine – official measures to halt global warming. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained the majority. That represents the combined GDP