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Can you reckon our system of government functions? It could be similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills become law. Statutes is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Rise of Shadow Tribunals

Today, overseas companies, along with the billionaires that control them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals made up of corporate lawyers. The cases are conducted away from public scrutiny. In contrast to domestic courts, these panels grant no opportunity to appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even companies operating from this country. Access is granted only to entities based overseas.

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

These awards are based not on real financial harm but compensation the arbitrators determine the company might otherwise have made. The state might be compelled to rescind the measure. It is hesitant to passing future laws in that area, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as companies take cues from each other, and private equity fund legal actions for a share of a portion of the takings. The result? Democratic sovereignty and democratic governance are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the choices made by elected bodies is that this clause has been incorporated – without democratic mandate, and frequently under conditions of total confidentiality – inside bilateral investment treaties.

A Concrete Instance: The Cumbrian Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer ruled that plans to excavate the first deep coalmine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have no consequence on climate commitments. The Labour government later cancelled the consent the former government had approved. Now, this legal outcome is under threat by an foreign court accountable to no one but the corporations bringing the case.

Last August, a company whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. Last week a arbitration panel in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the money it could have earned if the mine had received permission to proceed. The public has no idea how much this could amount to. Who is acting on its behalf against the state? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court upholds it, then a international entity contests it through an secretive arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coalmine case was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are little of the case to date, but it is highly possible that he will utilise the ISDS mechanism to fight the penalties the UK imposed on him following the Russian aggression. He has previously initiated proceedings against a small nation with similar intent, demanding $16bn: an amount representing half government’s annual revenue. Among the counsel representing him there? a prominent lawyer, spouse of the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized Russian assets as security for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over democratic administrations may be obstructing the money Ukraine urgently requires.

Empty Promises and Growing Costs

The public was told that such things were not possible. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, told us: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” A consultant on this matter described activists of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations had to worry about such legal actions. Predictions that “as corporations start to realise the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were met with scepticism.

That prediction has now materialised. This year, energy and resource corporations have initiated a historic level of suits against nations both wealthy and developing, challenging – as in the case of the UK mine – official measures to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP