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Can you reckon our system of government works? It could be something like this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Statutes is upheld by the courts. That's it. However, that used to be how it used to work. No longer.

The Emergence of Shadow Courts

Nowadays, international firms, along with the billionaires behind them, have the power to sue governments for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings are conducted behind closed doors. In contrast to domestic courts, these bodies allow no right of appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even businesses based in this country. They are open solely for businesses registered abroad.

If a tribunal determines that a legislative action could harm the corporation’s projected profits, it can award compensation of hundreds of millions, running into billions.

These awards represent not real financial harm but compensation the tribunal officials determine the company might otherwise have made. The state might be compelled to abandon its policy. It is deterred from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as firms learn from each other, and hedge funds fund legal actions for a share of a share of the settlements. The consequence? Sovereignty and democratic governance are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the choices enacted by elected bodies is that this provision has been written – without democratic mandate, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Concrete Example: The UK Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The justice found that plans to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The incoming administration later cancelled the licence the Tories had granted. Currently, this victory could be compromised by an secret arbitration panel reporting to no one but the companies filing the suit.

In August, a company whose ultimate owners reside in the Cayman Islands lodged a claim challenging the UK government. Last week a tribunal in Washington DC was established to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have little idea how much this sum represents. Who is representing it against the state? A member of parliament, and former attorney-general in the previous government, the noted patriot the MP. The administration makes a decision, the domestic court validates it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

The Russian Case

On the same day that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK imposed on him after the invasion of Ukraine. He has already filed a claim against Luxembourg on these grounds, demanding sixteen billion dollars: an amount representing half nation's yearly income. Among the lawyers representing him there? a prominent lawyer, married to the former British prime minister.

Trade specialists contend that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its financial support package is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments might be preventing the money Ukraine urgently requires.

Empty Promises and Escalating Risks

The public was told that these events wouldn’t happen. Years ago, a senior politician, promoting the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this matter labelled activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “as corporations begin to understand the authority they’ve been granted, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That threat has come to pass. Recently, energy and mining firms have lodged a historic level of suits against nations rich and poor, challenging – similar to the Whitehaven project – official measures to halt environmental catastrophe. Companies have to date won vast sums by using ISDS, of which oil majors have obtained $84bn. That represents the combined GDP