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Can you reckon our system of government operates? It could be something like this. We elect MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Shadow Courts

Nowadays, overseas companies, or the billionaires who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. The cases take place in secret. Differing from national judiciaries, these tribunals provide no opportunity to appeal or legal review. You or I are barred from bringing a case to them, just as our government, including companies based in this country. They are open exclusively to entities based overseas.

When a secret court rules that a law or policy could harm the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards represent not real financial harm but compensation the arbitrators determine the company might otherwise have made. The state might be compelled to abandon its policy. It will be deterred from passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being filed, as companies learn from each other, and investment funds fund legal actions in return for a cut of the settlements. The consequence? National sovereignty and democracy are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the choices made by legislatures is that this provision has been written – without democratic mandate, and frequently under conditions of profound opacity – into bilateral investment treaties.

A Specific Case: The Whitehaven Coal Mine

Twelve months ago, activists won a great victory at the senior court. The judge determined that plans to dig the first major coal mine in the UK for three decades, in Cumbria, had been illegally sanctioned by the previous government, which had accepted the questionable argument that the mine could have zero effect on climate commitments. The new government then withdrew the permission the Tories had approved. Currently, this legal outcome is under threat by an foreign court accountable to exclusively the entities bringing the case.

During August, a company whose final controllers are based in the offshore financial centre initiated proceedings challenging the UK government. Last week a tribunal in the United States was established to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this might be. What legal team is representing it in opposition to the state? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The government makes a decision, the national judiciary supports it, then a international entity disputes it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Case

On the same day that the court on the coalmine case was convened, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he will utilise the arbitration process to fight the sanctions the UK levied against him following the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: equivalent to half of government’s yearly budget. Among the counsel representing him there? Cherie Blair, spouse of the previous PM.

Legal experts believe that the EU’s delay in utilising seized oligarchs' funds as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments may be obstructing the money Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that these events wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all such treaties, declared: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” A consultant on this topic labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “when companies grasp the authority they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were met with general mockery.

That prediction has now materialised. In the current period, oil and gas and resource corporations have filed a unprecedented number of cases against nations across the economic spectrum, opposing – as in the case of the UK mine – official measures to prevent global warming. Firms have thus far won vast sums via ISDS, of which oil majors have obtained the majority. That equates to the combined GDP