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How do you perceive our political system functions? Maybe something like this. We elect MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Statutes is maintained by the courts. That's it. However, that was how it operated in the past. No longer.

The Emergence of Shadow Courts

In the modern era, foreign corporations, or the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are conducted behind closed doors. Differing from national judiciaries, these panels grant no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, including businesses operating from this country. They are open exclusively to corporations registered abroad.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, potentially billions.

These awards represent not tangible damages but money the arbitrators determine the company could potentially have made. The state could be forced to rescind the measure. It will be deterred from passing future laws along the same lines, due to the risk of being sued.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as companies learn from each other, and private equity fund legal actions for a share of a share of the settlements. The outcome? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions taken by elected bodies is that this stipulation has been written – without public consent, and frequently under an atmosphere of extreme secrecy – within trade treaties.

A Specific Example: The Whitehaven Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The presiding officer found that proposals to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration later cancelled the licence the previous administration had issued. Today, this legal outcome faces being overturned by an offshore tribunal answering to exclusively the corporations bringing the case.

Last August, a corporate entity whose final controllers reside in the offshore financial centre initiated proceedings versus the UK government. Recently a arbitration panel in the US capital was set up to adjudicate on it.

This firm is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. We have no idea how much this might be. Which individual is representing it challenging the British government? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the domestic court upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

The Russian Challenge

Simultaneously that the panel on the coalmine case was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case at present, but it seems likely that he will utilise the arbitration process to challenge the restrictions the UK enacted against him subsequent to the war in Ukraine. He has filed a claim against a small nation for this reason, claiming $16bn: an amount representing half state's yearly income. Included in the lawyers acting for him in that case? a prominent lawyer, married to the former British prime minister.

Legal experts believe that the EU’s procrastination in leveraging immobilised state funds as guarantee for its financial support package stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Threats

The public was told that such things wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” An adviser on this matter accused campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations should be concerned by these lawsuits. Warnings that “when companies start to realise the authority they’ve been granted, they will turn their attention from the weak nations to the strong ones” were greeted by scepticism.

That threat is now a reality. This year, energy and resource corporations have lodged a historic level of cases against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – government attempts to prevent global warming. Companies have so far won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP