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How do you perceive our system of government functions? Perhaps something like this. We elect MPs. They legislate on bills. If a majority is obtained, the bills pass into law. The law is maintained by the courts. Simple as that. However, that was how it used to work. No longer.

The Emergence of Shadow Courts

Nowadays, overseas companies, or the oligarchs that control them, are able to litigate against elected administrations for the laws they pass, at private courts made up of corporate lawyers. The cases take place in secret. Differing from national judiciaries, these bodies provide no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even businesses based in this country. They are open exclusively to businesses based overseas.

When a secret court rules that a government measure could harm the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards are based not on actual losses but compensation the panel members decide the company might otherwise have made. The state may have to rescind the measure. It is deterred from enacting future policies along the same lines, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being initiated, as corporations learn from each other, and hedge funds fund legal actions in return for a cut of the settlements. The outcome? National sovereignty and popular rule are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the decisions made by legislatures is that this clause has been inserted – absent public approval, and frequently under a climate of total confidentiality – into bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The justice ruled that plans to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have had zero effect on climate commitments. The new government subsequently revoked the consent the previous administration had issued. Now, this success faces being overturned by an foreign court accountable to only the entities petitioning it.

During August, a corporate entity whose final controllers reside in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a tribunal in the United States was convened to consider the case.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to go ahead. Citizens have little idea how much this might be. Who is acting on its behalf in opposition to the UK administration? A sitting MP, and ex-law officer in the Conservative government, the noted patriot the MP. The state enacts a policy, the domestic court supports it, then a foreign company contests it through an secretive offshore tribunal, and a elected official represents its behalf.

A Sanctions Lawsuit

On the same day that the panel on the coalmine case was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case at present, but it appears probable that he may employ the ISDS mechanism to fight the restrictions the UK enacted against him following the Russian aggression. He has already filed a claim against another European state for this reason, demanding $16bn: equivalent to half of nation's yearly budget. Among the legal team representing him there? the wife of a former prime minister, married to the previous PM.

International law scholars 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 subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over sovereign states may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Escalating Costs

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, promoting the largest and riskiest of all investment pacts, told us: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” An adviser on this issue described campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the authority they’ve been granted, they will turn their attention from the poorer states to the strong ones” were greeted by scepticism.

That threat has now materialised. Recently, energy and extraction companies have initiated a historic level of suits against nations rich and poor, opposing – similar to the UK mine – official measures to prevent global warming. Companies have so far won vast sums through ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP