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Can you understand our system of government operates? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. However, that was how it operated in the past. No longer.

The Rise of Shadow Courts

Nowadays, overseas companies, or the oligarchs behind them, have the power to sue elected administrations for the laws they pass, at private courts staffed by commercial attorneys. These proceedings are conducted in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, or even companies operating from this country. The door is open only to corporations registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s projected profits, it has the power to grant financial penalties of vast sums, even billions.

These sums represent not actual losses but money the arbitrators determine the company would perhaps have made. The government could be forced to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being filed, as companies learn from each other, and hedge funds bankroll lawsuits in exchange for a portion of the settlements. The outcome? National sovereignty and democracy are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the rulings taken by parliaments is that this provision has been incorporated – without democratic mandate, and often in conditions of profound opacity – into bilateral investment treaties.

A Real-World Instance: The Whitehaven Coal Mine

Last year, a conservation group secured a significant win at the senior court. The presiding officer determined that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine could have zero effect on climate commitments. The incoming administration later cancelled the consent the previous administration had granted. Currently, this victory faces being overturned by an foreign court answering to only the entities bringing the case.

In August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings against the UK government. Recently a tribunal in the United States was established to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been permitted to commence operations. Citizens have little idea how much this might be. What legal team is acting on its behalf against the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The government enacts a policy, the high court validates it, then a foreign company contests it through an unaccountable private court, and a sitting MP represents its behalf.

An Oligarch's Case

Simultaneously that the panel on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case to date, but it seems likely that he may employ the ISDS mechanism to challenge the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation on these grounds, demanding $16bn: an amount representing half government’s yearly budget. Among the counsel on his side? Cherie Blair, wife of the previous PM.

Trade specialists argue that the EU’s procrastination in leveraging immobilised Russian assets as security for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations might be preventing the finance Ukraine urgently requires.

Empty Promises and Escalating Threats

We were assured that these scenarios were not possible. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, told us: “Britain has agreed to trade deal after trade deal and we have never seen a issue in the past.” An expert on this topic labelled critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “once firms grasp the power bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That prediction has come to pass. Recently, fossil fuel and resource corporations have initiated a historic level of claims against nations across the economic spectrum, challenging – like the example of the Whitehaven project – state efforts to stop climate breakdown. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP