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What is your reckon our system of government works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills become law. Statutes is maintained by the courts. Simple as that. Well, that’s how it once functioned. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, and the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. These proceedings are conducted in secret. Differing from national judiciaries, these panels provide no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses based in this country. They are open solely for entities based overseas.

When a secret court determines that a government measure may compromise the corporation’s anticipated profits, it can award compensation of vast sums, running into billions.

These awards are based not on actual losses but compensation the panel members conclude the company might otherwise have made. The administration might be compelled to drop the legislation. It becomes hesitant to introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of legal actions are being filed, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The consequence? Sovereignty and popular rule are turning into too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the decisions taken by parliaments is that this clause has been written – absent public approval, and often in conditions of total confidentiality – inside trade treaties.

A Specific Case: The Whitehaven Coal Mine

Last year, activists secured a significant win at the senior court. The justice ruled that schemes to dig the first new deep coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration later cancelled the consent the Tories had issued. Currently, this victory is under threat by an secret arbitration panel accountable to only the companies filing the suit.

In August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings against the UK government. Last week a dispute settlement body in the US capital was convened to adjudicate on it.

The company is suing the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have little idea how much this sum represents. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the national judiciary supports it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Case

Simultaneously that the court on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows scarce of the case to date, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK levied against him after the invasion of Ukraine. He has filed a claim against a small nation on these grounds, demanding $16bn: half that government’s annual revenue. Part of the lawyers acting for him in that case? Cherie Blair, married to the former British prime minister.

Trade specialists argue that the EU’s hesitation in using frozen Russian assets as security for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

Misleading Claims and Mounting Risks

We were assured that such things were not possible. Years ago, a former prime minister, championing the largest and riskiest of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” An adviser on this matter accused activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Cautionary notes that “as corporations grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That prediction has come to pass. Recently, fossil fuel and extraction companies have filed a record number of cases against nations both wealthy and developing, contesting – like the example of the Whitehaven project – official measures to halt global warming. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP