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Can you perceive our political system operates? Maybe along the lines of this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. End of story. However, that was how it used to work. Not anymore.

The Rise of Shadow Courts

Nowadays, overseas companies, and the wealthy individuals behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of business advocates. The cases are held away from public scrutiny. In contrast to domestic courts, these tribunals provide no right of appeal or oversight by judges. The general public cannot take a case to them, nor can our government, including enterprises based in this country. Access is granted exclusively to entities operating from foreign soil.

When a secret court rules that a government measure might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions, potentially billions.

This compensation are based not on tangible damages but funds the panel members determine the company might otherwise have made. The state could be forced to rescind the measure. It will be discouraged from enacting future policies in that area, worried about facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being initiated, as companies observe each other, and hedge funds fund legal actions for a share of a portion of the settlements. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the rulings taken by legislatures is that this provision has been written – absent public approval, and typically amid conditions of profound opacity – inside trade treaties.

A Concrete Instance: The UK Coal Mine

Last year, environmental campaigners won a great victory at the High Court. The presiding officer determined that schemes to dig the first new deep coal mine in the UK for a generation, in northwest England, had been illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine could have zero effect on climate commitments. The new government later cancelled the licence the previous administration had issued. Now, this success faces being overturned by an foreign court accountable to only the companies filing the suit.

In August, a company whose ultimate owners reside in the tax haven filed a lawsuit challenging the UK government. Last week a dispute settlement body in Washington DC was set up to hear it.

The claimant is litigating against the UK for the profits it would have generated if the mine had been permitted to go ahead. We have no clear indication how much this might be. Which individual is acting on its behalf in opposition to the state? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court upholds it, then a foreign company disputes it through an unaccountable private court, and a elected official works for its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case at present, but it seems likely that he will utilise the tribunal to challenge the sanctions the UK imposed on him subsequent to the Russian aggression. He has previously started suing another European state for this reason, claiming a colossal sum: an amount representing half nation's yearly budget. Part of the legal team acting for him in that case? Cherie Blair, married to the ex-UK leader.

Legal experts contend that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Mounting Threats

Politicians promised that these events were not possible. In 2014, a government leader, advocating for the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” A consultant on this topic labelled critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear these lawsuits. Predictions that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That prediction has now materialised. This year, oil and gas and extraction companies have initiated a unprecedented number of cases against nations both wealthy and developing, opposing – similar to the Whitehaven project – government attempts to halt environmental catastrophe. Companies have so far won vast sums via ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP