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What is your reckon our political system works? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills become law. Legislation are enforced by the courts. That's it. However, that was how it once functioned. Not anymore.

The Rise of Shadow Tribunals

Nowadays, overseas companies, along with the billionaires who own them, can sue nation states for the regulations they pass, at secret arbitration panels composed of commercial attorneys. The cases take place behind closed doors. Differing from national judiciaries, these bodies allow no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, or even businesses based in this country. The door is open exclusively to businesses operating from foreign soil.

Should an arbitration panel determines that a government measure could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These sums constitute not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The state may have to abandon its policy. It becomes deterred from passing future laws along the same lines, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Record numbers of cases are being initiated, as companies learn from each other, and investment funds fund legal actions for a share of a share of the awards. The result? National sovereignty and democracy are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the choices taken by legislatures is that this provision has been incorporated – without public consent, and typically amid an atmosphere of profound opacity – inside trade treaties.

A Specific Case: The Whitehaven Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The judge ruled that proposals to open the first new deep coal mine in the UK for three decades, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no impact on climate commitments. The Labour government subsequently revoked the licence the former government had granted. Currently, this victory faces being overturned by an offshore tribunal accountable to no one but the companies bringing the case.

In August, a company whose final controllers reside in the Cayman Islands initiated proceedings against the UK government. Recently a dispute settlement body in the United States was established to hear it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to proceed. The public has little idea how much this sum represents. Who is representing it against the British government? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The state passes a law, the domestic court supports it, then a international entity disputes it through an undemocratic arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

On the same day that the court on the mining lawsuit was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know nothing of the case so far, but it appears probable that he may employ the arbitration process to contest the restrictions the UK imposed on him after the invasion of Ukraine. He has previously started suing another European state for this reason, demanding $16bn: an amount representing half state's annual revenue. Among the legal team acting for him in that case? a prominent lawyer, married to the former British prime minister.

Legal experts argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its financial support package stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

False Assurances and Growing Costs

The public was told that these events were not possible. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, told us: “The UK has signed investment treaty upon trade deal and we have never seen a case in the past.” An adviser on this issue described critics of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “once firms grasp the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That prediction is now a reality. Recently, fossil fuel and resource corporations have initiated a record number of suits against nations rich and poor, challenging – similar to the Whitehaven project – government attempts to stop global warming. Companies have to date won vast sums by using ISDS, of which energy giants have secured the majority. That equates to the combined GDP