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How do you perceive our political system operates? Perhaps something like this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. The law is maintained by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

Today, overseas companies, along with the oligarchs behind them, are able to litigate against governments for the laws they pass, at secret arbitration panels composed of business advocates. The cases are held in secret. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even companies operating from this country. They are open solely for businesses based overseas.

Should an arbitration panel determines that a legislative action could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These sums constitute not real financial harm but compensation the tribunal officials conclude the company would perhaps have made. The state may have to drop the legislation. It is discouraged from introducing similar legislation in that area, for fear of being sued.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being filed, as corporations learn from each other, and hedge funds bankroll lawsuits for a share of a cut of the awards. The outcome? Sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the decisions made by elected bodies is that this stipulation has been incorporated – absent public approval, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Real-World Instance: The UK Coalmine

Twelve months ago, a conservation group secured a significant win at the High Court. The presiding officer determined that schemes to open the first new deep coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have no impact on our carbon budgets. The new government then withdrew the permission the former government had issued. Currently, this success faces being overturned by an secret arbitration panel answering to exclusively the companies bringing the case.

In August, a company whose final controllers are located in the tax haven filed a lawsuit versus the UK government. The previous week a dispute settlement body in the United States was convened to hear it.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. The public has no idea how much this might be. What legal team is acting on its behalf in opposition to the state? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The administration passes a law, the high court validates it, then a foreign company contests it through an unaccountable private court, and a elected official works for its behalf.

An Oligarch's Challenge

On the same day that the court on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it seems likely that he may employ the tribunal to fight the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg with similar intent, claiming $16bn: an amount representing half government’s annual revenue. Included in the lawyers representing him there? a prominent lawyer, married to the previous PM.

Trade specialists contend that the EU’s delay in utilising seized Russian assets as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

Misleading Claims and Escalating Risks

The public was told that such things wouldn’t happen. Previously, a government leader, advocating for the biggest and most dangerous of all these agreements, declared: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” An expert on this matter accused critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about these lawsuits. Warnings that “once firms start to realise the influence they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were dismissed with scepticism.

That threat has now materialised. This year, energy and extraction companies have lodged a historic level of cases against nations both wealthy and developing, opposing – similar to the Whitehaven project – state efforts to halt environmental catastrophe. Firms have to date won $114bn through ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP