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Can you reckon our system of government functions? It could be along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Legislation is maintained by the courts. That's it. However, that was how it used to work. Not anymore.

The Rise of Shadow Courts

Nowadays, international firms, or the wealthy individuals that control them, have the power to sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. Such disputes take place in secret. Unlike our courts, these panels allow no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, including companies based in this country. Access is granted only to corporations operating from foreign soil.

When a secret court rules that a government measure may compromise the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, even billions.

These sums are based not on actual losses but compensation the arbitrators conclude the company might otherwise have made. The administration could be forced to rescind the measure. It will be hesitant to passing future laws along the same lines, due to the risk of being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as firms take cues from each other, and investment funds finance suits for a share of a portion of the awards. The outcome? National sovereignty and democratic governance are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the decisions made by parliaments is that this provision has been inserted – without public consent, and frequently under conditions of total confidentiality – within bilateral investment treaties.

A Concrete Instance: The UK Coalmine

Last year, activists achieved a major legal triumph at the High Court. The judge ruled that plans to excavate the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no consequence on national carbon targets. The new government then withdrew the licence the former government had approved. Currently, this victory is under threat by an foreign court accountable to exclusively the entities filing the suit.

In August, a firm whose final controllers reside in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in the United States was convened to hear it.

The company is seeking compensation from the UK for the money it could have earned if the mine had received permission to go ahead. The public has no idea how much this might be. What legal team is representing it challenging the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The state passes a law, the national judiciary supports it, then a foreign company disputes it through an unaccountable private court, and a member of our parliament acts on its behalf.

The Russian Case

Concurrently that the court on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case so far, but it appears probable that he will utilise the tribunal to challenge the penalties the UK levied against him following the invasion of Ukraine. He has started suing Luxembourg on these grounds, seeking a colossal sum: equivalent to half of government’s yearly budget. Included in the legal team representing him there? a prominent lawyer, wife of the previous PM.

Trade specialists believe that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments might be preventing the money Ukraine urgently requires.

Misleading Claims and Mounting Costs

Politicians promised that such things wouldn’t happen. In 2014, a government leader, promoting the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement upon trade deal and we have never seen a problem in the past.” A consultant on this issue described campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by ISDS claims. Predictions that “once firms start to realise the influence they now possess, they will shift their focus from the vulnerable countries to the developed economies” were greeted by scepticism.

That threat has now materialised. This year, fossil fuel and mining firms have filed a historic level of claims against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to prevent climate breakdown. Companies have to date won vast sums through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP