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What is your understand our system of government operates? Maybe something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law are enforced by the courts. Simple as that. However, that’s how it once functioned. Not anymore.

The Rise of Shadow Courts

Nowadays, foreign corporations, or the wealthy individuals behind them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels composed of business advocates. The cases take place behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even businesses based in this country. Access is granted solely for entities based overseas.

Should an arbitration panel determines that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions, potentially billions.

This compensation are based not on tangible damages but compensation the tribunal officials conclude the company would perhaps have made. The government could be forced to drop the legislation. It becomes hesitant to passing future laws along the same lines, for fear of being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being filed, as companies take cues from each other, and private equity bankroll lawsuits in exchange for a share of the settlements. The consequence? National sovereignty and democracy are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the choices enacted by legislatures is that this clause has been inserted – absent public approval, and typically amid conditions of profound opacity – inside trade treaties.

A Specific Instance: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The judge found that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine could have zero effect on national carbon targets. The new government later cancelled the licence the previous administration had issued. Now, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the entities filing the suit.

During August, a corporate entity whose final controllers reside in the Cayman Islands lodged a claim versus the UK government. Last week a tribunal in Washington DC was set up to consider the case.

This firm is litigating against the UK for the revenue it might have made if the mine had been allowed to proceed. The public has no idea how much this sum represents. What legal team is representing it in opposition to the UK administration? A member of parliament, and former attorney-general in the Conservative government, that great patriot the MP. The government passes a law, the domestic court supports it, then a foreign company disputes it through an secretive offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Challenge

On the same day that the tribunal on the mining lawsuit was convened, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know little of the case at present, but it appears probable that he’ll use the ISDS mechanism to challenge the restrictions the UK enacted against him subsequent to the Russian aggression. He has previously filed a claim against Luxembourg with similar intent, claiming $16bn: half that government’s annual revenue. Among the legal team acting for him in that case? a prominent lawyer, married to the former British prime minister.

Trade specialists argue that the EU’s delay in leveraging immobilised state funds as security for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Mounting Risks

We were assured that such things were not possible. Years ago, a government leader, promoting the largest and riskiest of all such treaties, told us: “The UK has signed trade deal upon trade deal and we have never seen a case in the past.” An adviser on this topic accused critics of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “once firms begin to understand the influence they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were met with scepticism.

That threat is now a reality. Recently, oil and gas and resource corporations have lodged a record number of suits against nations both wealthy and developing, opposing – similar to the Whitehaven project – official measures to prevent global warming. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured the majority. That equates to the combined GDP