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Can you understand our political system works? It could be something like this. We elect MPs. They vote on bills. If a majority is obtained, the bills become law. Legislation is upheld by the courts. That's it. However, that was how it once functioned. Those days are over.

The Advent of Shadow Courts

Nowadays, overseas companies, or the wealthy individuals behind them, have the power to sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. These proceedings are conducted away from public scrutiny. Unlike our courts, these tribunals allow no right of appeal or legal review. The general public are unable to file a case to them, just as our government, or even companies based in this country. Access is granted only to entities operating from foreign soil.

If a tribunal rules that a government measure could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

This compensation are based not on real financial harm but compensation the tribunal officials determine the company would perhaps have made. The administration might be compelled to rescind the measure. It will be deterred from enacting future policies in that area, due to the risk of being sued.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and hedge funds fund legal actions in return for a cut of the takings. The outcome? Democratic sovereignty and democratic governance are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the choices taken by legislatures is that this provision has been inserted – without public consent, and frequently under conditions of total confidentiality – within international trade agreements.

A Real-World Instance: The Cumbrian Coalmine

Last year, a conservation group secured a significant win at the high court. The justice ruled that schemes to dig the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have no impact on our carbon budgets. The incoming administration then withdrew the permission the former government had issued. Currently, this legal outcome faces being overturned by an offshore tribunal reporting to no one but the companies petitioning it.

Last August, a firm whose beneficial owners reside in the Cayman Islands lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. The public has no clear indication how much this might be. Which individual is serving as its counsel challenging the state? A sitting MP, and former attorney-general in the Conservative government, that great patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary supports it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official works for its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coal mine dispute was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case so far, but it seems likely that he’ll use the arbitration process to fight the penalties the UK enacted against him following the war in Ukraine. He has filed a claim against another European state with similar intent, claiming a colossal sum: an amount representing half state's annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in using frozen state funds as collateral for its financial support package is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over sovereign states might be preventing the money Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that these scenarios could not occur. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” A consultant on this matter labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by these lawsuits. Warnings that “once firms grasp the influence they’ve been granted, they will shift their focus from the weak nations to the developed economies” were greeted by general mockery.

That threat has now materialised. This year, energy and extraction companies have filed a historic level of cases against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have thus far won vast sums via ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP