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Can you reckon our political system works? Perhaps similar to this. We elect MPs. They legislate on bills. If a majority is obtained, the bills become law. The law is upheld by the courts. End of story. However, that was how it once functioned. Those days are over.

The Emergence of Shadow Courts

Nowadays, foreign corporations, and the billionaires that control them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or judicial review. The general public cannot take a case to them, nor can our government, or even companies operating from this country. Access is granted exclusively to businesses based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, running into billions.

This compensation represent not actual losses but money the arbitrators determine the company might otherwise have made. The state may have to rescind the measure. It is discouraged from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Process Running Rampant

Record numbers of disputes are being brought, as firms take cues from each other, and investment funds finance suits in exchange for a cut of the awards. The consequence? Democratic sovereignty and popular rule are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the decisions enacted by parliaments is that this clause has been inserted – without democratic mandate, and frequently under an atmosphere of total confidentiality – into trade treaties.

A Specific Instance: The Whitehaven Coal Mine

Last year, activists won a great victory at the senior court. The justice ruled that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect on national carbon targets. The new government then withdrew the licence the Tories had approved. Currently, this legal outcome could be compromised by an secret arbitration panel answering to no one but the entities petitioning it.

During August, a firm whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. The previous week a tribunal in the United States was established to adjudicate on it.

The company is suing the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has no clear indication how much this sum represents. Which individual is representing it against the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The state makes a decision, the national judiciary upholds it, then a international entity disputes it through an unaccountable private court, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case so far, but it appears probable that he will utilise the arbitration process to contest the restrictions the UK imposed on him after the invasion of Ukraine. He has previously started suing a small nation with similar intent, demanding a colossal sum: equivalent to half of state's yearly budget. Part of the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

Legal experts believe that the EU’s procrastination in leveraging immobilised state funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states may be obstructing the money Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that these events could not occur. Years ago, a government leader, advocating for the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” An expert on this topic described activists of “alarmism … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations start to realise the authority they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning has now materialised. Recently, energy and extraction companies have filed a record number of claims against nations both wealthy and developing, opposing – like the example of the Whitehaven project – government attempts to stop climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP