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How do you perceive our political system operates? It could be something like this. We elect MPs. They vote on bills. When a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. Well, that’s how it once functioned. No longer.

The Emergence of Shadow Courts

Today, international firms, or the oligarchs behind them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. These proceedings take place in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or legal review. The general public are unable to file a case to them, nor can our government, or even companies based in this country. The door is open only to entities based overseas.

When a secret court rules that a government measure could harm the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These sums are based not on tangible damages but compensation the tribunal officials decide the company might otherwise have made. The government may have to drop the legislation. It is deterred from enacting future policies along the same lines, due to the risk of being sued.

A Process Growing Exponentially

Record numbers of legal actions are being filed, as firms take cues from each other, and private equity finance suits for a share of a share of the awards. The consequence? Democratic sovereignty and democracy are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the choices made by legislatures is that this provision has been written – without democratic mandate, and frequently under an atmosphere of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

Last year, a conservation group achieved a major legal triumph at the high court. The justice determined that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have had no impact on national carbon targets. The new government later cancelled the consent the previous administration had granted. Today, this victory is under threat by an secret arbitration panel answering to only the entities filing the suit.

Last August, a company whose beneficial owners reside in the offshore financial centre lodged a claim challenging the UK government. The previous week a tribunal in the United States was convened to adjudicate on it.

The company is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. The public has no clear indication how much this could amount to. What legal team is acting on its behalf in opposition to the UK administration? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the high court upholds it, then a foreign company challenges it through an secretive arbitration panel, and a elected official acts on its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know nothing of the case at present, but it seems likely that he may employ the tribunal to fight the penalties the UK levied against him after the invasion of Ukraine. He has already started suing another European state for this reason, demanding a colossal sum: half that state's yearly income. Included in the counsel acting for him in that case? Cherie Blair, spouse of the previous PM.

International law scholars contend that the EU’s procrastination in utilising seized state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

Empty Promises and Escalating Risks

We were assured that these scenarios were not possible. Years ago, a former prime minister, championing the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this issue labelled critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries had to worry about such legal actions. Predictions that “when companies start to realise the power bestowed upon them, they will shift their focus from the weak nations to the strong ones” were dismissed with widespread derision.

That warning has come to pass. In the current period, energy and mining firms have filed a historic level of suits against nations rich and poor, challenging – as in the case of the UK mine – official measures to stop global warming. Firms have thus far won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP