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How do you reckon our system of government operates? Perhaps along the lines of this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that used to be how it used to work. Not anymore.

The Advent of Shadow Courts

In the modern era, international firms, and the wealthy individuals behind them, are able to litigate against governments for the policies they pass, at private courts staffed by commercial attorneys. The cases are conducted in secret. Differing from national judiciaries, these panels allow no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. They are open exclusively to corporations based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it can award compensation of vast sums, even billions.

These awards are based not on tangible damages but money the arbitrators decide the company could potentially have made. The government might be compelled to rescind the measure. It becomes deterred from passing future laws in that area, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies observe each other, and hedge funds fund legal actions in exchange for a portion of the settlements. The result? National sovereignty and popular rule are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the decisions made by parliaments is that this stipulation has been written – absent public approval, and typically amid an atmosphere of total confidentiality – within international trade agreements.

A Concrete Case: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the high court. The presiding officer ruled that proposals to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had no impact on climate commitments. The new government later cancelled the permission the former government had granted. Today, this victory is under threat by an foreign court reporting to no one but the companies petitioning it.

In August, a company whose ultimate owners reside in the tax haven filed a lawsuit versus the UK government. The previous week a tribunal in the US capital was established to adjudicate on it.

This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no idea how much this sum represents. What legal team is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The government makes a decision, the high court supports it, then a foreign company challenges it through an secretive private court, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was established, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the penalties the UK imposed on him after the invasion of Ukraine. He has already started suing another European state for this reason, claiming a colossal sum: half that government’s yearly budget. Among the counsel representing him there? a prominent lawyer, wife of the previous PM.

Trade specialists contend that the EU’s delay in using frozen oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the funds Ukraine desperately needs.

Empty Promises and Escalating Threats

We were assured that these events were not possible. Previously, a government leader, championing the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this matter described critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations had to worry about these lawsuits. Warnings that “once firms begin to understand the power they now possess, they will redirect their efforts from the poorer states to the developed economies” were greeted by general mockery.

That threat is now a reality. In the current period, fossil fuel and mining firms have lodged a unprecedented number of suits against nations across the economic spectrum, contesting – similar to the UK mine – state efforts to prevent climate breakdown. Firms have to date won $114bn through ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP