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Can you understand our system of government functions? Maybe something like this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills become law. The law is upheld by the courts. End of story. However, that used to be how it used to work. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, international firms, along with the billionaires behind them, can sue elected administrations for the policies they pass, at private courts staffed by corporate lawyers. The cases are conducted away from public scrutiny. Differing from national judiciaries, these tribunals grant no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, just as our government, or even companies headquartered in this country. Access is granted exclusively to entities operating from foreign soil.

If a tribunal determines that a legislative action might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, even billions.

These sums represent not tangible damages but compensation the arbitrators decide the company might otherwise have made. The state might be compelled to drop the legislation. It becomes deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A Process Growing Exponentially

Historically high figures of legal actions are being brought, as firms take cues from each other, and hedge funds fund legal actions in exchange for a cut of the takings. The result? Democratic sovereignty and democratic governance are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the decisions made by legislatures is that this clause has been incorporated – without public consent, and frequently under a climate of profound opacity – into international trade agreements.

A Concrete Case: The Whitehaven Coal Mine

A year ago, a conservation group won a great victory at the High Court. The justice determined that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine could have no impact on climate commitments. The Labour government then withdrew the consent the Tories had approved. Today, this success could be compromised by an secret arbitration panel answering to exclusively the entities petitioning it.

During August, a company whose ultimate owners are located in the offshore financial centre initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. We have little idea how much this sum represents. Who is serving as its counsel in opposition to the British government? A member of parliament, and former attorney-general in the Conservative government, the noted patriot the MP. The government enacts a policy, the high court validates it, then a international entity disputes it through an secretive offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Lawsuit

On the same day that the panel on the coalmine case was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it seems likely that he will utilise the ISDS mechanism to contest the penalties the UK levied against him after the war in Ukraine. He has already initiated proceedings against another European state with similar intent, demanding $16bn: equivalent to half of state's annual revenue. Included in the counsel representing him there? a prominent lawyer, wife of the previous PM.

Legal experts argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over sovereign states might be preventing the money Ukraine urgently requires.

False Assurances and Escalating Risks

We were assured that such things were not possible. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, told us: “The UK has signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this topic labelled activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries needed to fear these lawsuits. Cautionary notes that “when companies grasp the power they now possess, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with general mockery.

That warning is now a reality. In the current period, oil and gas and mining firms have lodged a historic level of suits against nations both wealthy and developing, challenging – similar to the Whitehaven project – government attempts to stop global warming. Firms have to date won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP