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How do you reckon our system of government functions? Perhaps similar to this. We elect MPs. They legislate on bills. When a majority is obtained, the bills become law. The law is upheld by the courts. End of story. However, that was how it used to work. Not anymore.

The Emergence of Shadow Courts

Today, international firms, or the oligarchs behind them, can sue elected administrations for the laws they pass, at secret arbitration panels staffed by business advocates. The cases take place behind closed doors. Unlike our courts, these panels grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even businesses based in this country. Access is granted exclusively to corporations based overseas.

If a tribunal rules that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These sums represent not real financial harm but funds the tribunal officials decide the company might otherwise have made. The government could be forced to abandon its policy. It is discouraged from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Historically high figures of disputes are being initiated, as corporations observe each other, and hedge funds bankroll lawsuits for a share of a portion of the settlements. The outcome? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the choices taken by legislatures is that this clause has been written – without public consent, and typically amid a climate of extreme secrecy – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Last year, a conservation group secured a significant win at the senior court. The presiding officer found that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were unlawfully approved by the previous government, which had agreed to the questionable argument that the mine could have no impact on our carbon budgets. The incoming administration then withdrew the licence the previous administration had issued. Currently, this legal outcome is under threat by an secret arbitration panel answering to no one but the corporations petitioning it.

During August, a firm whose beneficial owners are based in the tax haven lodged a claim against the UK government. Last week a tribunal in Washington DC was established to hear it.

The claimant is litigating against the UK for the profits it could have earned if the mine had been allowed to go ahead. Citizens have no idea how much this might be. Who is serving as its counsel challenging the state? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a international entity contests it through an unaccountable private court, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the court on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he may employ the tribunal to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has previously filed a claim against a small nation with similar intent, demanding $16bn: half that government’s yearly budget. Included in the counsel representing him there? a prominent lawyer, wife of the previous PM.

International law scholars believe that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its financial support package stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states may be obstructing the finance Ukraine urgently requires.

False Assurances and Escalating Risks

The public was told that such things were not possible. Previously, a former prime minister, promoting the biggest and most dangerous of all these agreements, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter described activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “once firms start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That prediction has come to pass. This year, oil and gas and resource corporations have initiated a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – government attempts to halt environmental catastrophe. Companies have to date won $114bn through ISDS, of which oil majors have obtained the majority. That equates to the combined GDP