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Can you reckon our system of government functions? Perhaps similar to this. The public votes for MPs. They vote on bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. That's it. However, that was how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

In the modern era, overseas companies, or the billionaires who own them, are able to litigate against governments for the laws they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are held in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or legal review. You or I cannot take a case to them, nor can our government, or even enterprises headquartered in this country. Access is granted solely for businesses operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it has the power to grant damages of vast sums, even billions.

This compensation constitute not actual losses but funds the arbitrators determine the company could potentially have made. The administration may have to rescind the measure. It becomes hesitant to passing future laws in that area, due to the risk of facing litigation.

A Mechanism Running Rampant

Record numbers of disputes are being initiated, as companies learn from each other, and hedge funds fund legal actions for a share of a cut of the awards. The result? Sovereignty and democratic governance are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices taken by legislatures is that this clause has been incorporated – without democratic mandate, and frequently under an atmosphere of profound opacity – into trade treaties.

A Real-World Example: The UK Coal Mine

A year ago, a conservation group secured a significant win at the high court. The judge ruled that proposals to open the first major coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The Labour government subsequently revoked the consent the former government had issued. Currently, this success could be compromised by an foreign court reporting to no one but the entities bringing the case.

During August, a company whose beneficial owners are based in the tax haven initiated proceedings challenging the UK government. Recently a dispute settlement body in the US capital was convened to adjudicate on it.

The company is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. Citizens have no clear indication how much this might be. What legal team is representing it challenging the state? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the high court validates it, then a foreign company challenges it through an secretive arbitration panel, and a elected official represents its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coalmine case was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case to date, but it seems likely that he’ll use the tribunal to contest the restrictions the UK imposed on him after the Russian aggression. He has previously initiated proceedings against another European state on these grounds, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Part of the counsel representing him there? a prominent lawyer, wife of the previous PM.

International law scholars believe that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the finance Ukraine urgently requires.

False Assurances and Growing Threats

Politicians promised that such things were not possible. In 2014, a government leader, championing the largest and riskiest of all these agreements, declared: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” An expert on this issue accused activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations should be concerned by these lawsuits. Predictions that “when companies grasp the authority they’ve been granted, they will turn their attention from the poorer states to the developed economies” were met with widespread derision.

That warning has come to pass. This year, fossil fuel and mining firms have initiated a historic level of claims against nations rich and poor, contesting – as in the case of the Whitehaven project – official measures to stop climate breakdown. Companies have thus far won vast sums by using ISDS, of which oil majors have secured the majority. That is equivalent to the combined GDP