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Can you reckon our system of government functions? It could be similar to this. We elect MPs. They vote on bills. If a majority is obtained, the bills become law. The law is upheld by the courts. That's it. However, that was how it once functioned. No longer.

The Advent of Shadow Tribunals

Today, international firms, and the billionaires that control them, have the power to sue governments for the laws they pass, at private courts composed of corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, including enterprises operating from this country. They are open only to businesses registered abroad.

Should an arbitration panel rules that a government measure might diminish the corporation’s expected profits, it can award damages of hundreds of millions, even billions.

This compensation represent not tangible damages but money the arbitrators conclude the company might otherwise have made. The government might be compelled to rescind the measure. It becomes deterred from passing future laws along the same lines, due to the risk of being sued.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being brought, as corporations learn from each other, and investment funds bankroll lawsuits in return for a portion of the takings. The consequence? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the rulings enacted by legislatures is that this provision has been inserted – absent public approval, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Specific Example: The Cumbrian Coal Mine

Last year, environmental campaigners secured a significant win at the High Court. The justice found that schemes to dig the first major coal mine in the UK for three decades, in northwest England, were wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The new government later cancelled the permission the Tories had issued. Now, this victory is under threat by an secret arbitration panel answering to exclusively the corporations petitioning it.

In August, a corporate entity whose final controllers are located in the Cayman Islands filed a lawsuit versus the UK government. The previous week a dispute settlement body in the US capital was set up to adjudicate on it.

The company is litigating against the UK for the money it could have earned if the mine had been allowed to commence operations. We have no clear indication how much this might be. Which individual is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The state enacts a policy, the domestic court supports it, then a international entity challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the panel on the coalmine case was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are little of the case so far, but it seems likely that he will utilise the arbitration process to challenge the penalties the UK levied against him following the Russian aggression. He has previously started suing another European state on these grounds, seeking a colossal sum: equivalent to half of state's annual revenue. Among the lawyers representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists contend that the EU’s delay in using frozen Russian assets as security for its financial support package arises from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. Previously, a government leader, advocating for the largest and riskiest of all investment pacts, stated: “The UK has signed trade deal upon trade deal and we have never seen a problem in the past.” A consultant on this issue labelled activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the influence bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That warning has now materialised. This year, energy and resource corporations have filed a unprecedented number of cases against nations both wealthy and developing, challenging – as in the case of the UK mine – government attempts to prevent climate breakdown. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP