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Can you reckon our political system operates? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law is upheld by the courts. End of story. However, that’s how it used to work. Those days are over.

The Advent of Shadow Courts

In the modern era, overseas companies, or the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at private courts composed of commercial attorneys. Such disputes take place away from public scrutiny. In contrast to domestic courts, these tribunals allow no avenue for appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. They are open only to businesses registered abroad.

If a tribunal determines that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums are based not on real financial harm but funds the arbitrators decide the company could potentially have made. The state might be compelled to drop the legislation. It is discouraged from enacting future policies of a similar nature, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of legal actions are being filed, as companies observe each other, and private equity finance suits for a share of a share of the awards. The consequence? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the rulings made by elected bodies is that this clause has been written – without democratic mandate, and often in conditions of profound opacity – within international trade agreements.

A Real-World Case: The Whitehaven Coal Mine

Last year, activists achieved a major legal triumph at the high court. The presiding officer ruled that plans to open the first major coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have no consequence on national carbon targets. The new government then withdrew the licence the Tories had issued. Currently, this success is under threat by an offshore tribunal reporting to only the companies petitioning it.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands filed a lawsuit versus the UK government. Last week a arbitration panel in the United States was convened to hear it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this could amount to. What legal team is serving as its counsel in opposition to the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The administration makes a decision, the high court upholds it, then a international entity challenges it through an unaccountable private court, and a sitting MP represents its behalf.

The Russian Lawsuit

On the same day that the court on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case to date, but it appears probable that he will utilise the tribunal to fight the restrictions the UK levied against him following the war in Ukraine. He has already started suing a small nation with similar intent, demanding a colossal sum: equivalent to half of government’s yearly budget. Among the counsel on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars contend that the EU’s procrastination in using frozen state funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over sovereign states may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Escalating Costs

We were assured that these events were not possible. In 2014, a government leader, advocating for the most significant and hazardous of all these agreements, told us: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this matter labelled critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies grasp the influence they’ve been granted, they will turn their attention from the weak nations to the developed economies” were met with general mockery.

That threat has come to pass. Recently, energy and extraction companies have filed a unprecedented number of claims against nations rich and poor, opposing – as in the case of the Whitehaven project – government attempts to prevent climate breakdown. Companies have to date won $114bn through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP