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How do you understand our system of government works? It could be similar to this. We elect MPs. They vote on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. Simple as that. Well, that’s how it operated in the past. No longer.

The Emergence of Shadow Courts

In the modern era, international firms, and the wealthy individuals who own them, are able to litigate against nation states for the policies they pass, at private courts staffed by corporate lawyers. Such disputes are conducted in secret. Differing from national judiciaries, these panels grant no avenue for appeal or legal review. The general public are unable to file a case to them, and neither can our government, including businesses based in this country. The door is open only to entities operating from foreign soil.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it may order damages of hundreds of millions of pounds, even billions.

These awards are based not on actual losses but money the tribunal officials decide the company could potentially have made. The state might be compelled to rescind the measure. It will be discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of disputes are being filed, as corporations take cues from each other, and private equity finance suits in exchange for a cut of the awards. The result? Sovereignty and democratic governance are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the decisions enacted by parliaments is that this provision has been inserted – without public consent, and frequently under a climate of total confidentiality – inside international trade agreements.

A Real-World Case: The Cumbrian Coalmine

Last year, environmental campaigners won a great victory at the senior court. The presiding officer ruled that schemes to excavate the first new deep coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the previous government, which had endorsed the questionable argument that the mine could have no impact on our carbon budgets. The new government then withdrew the permission the previous administration had granted. Today, this legal outcome could be compromised by an foreign court accountable to exclusively the companies filing the suit.

Last August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings against the UK government. Recently a arbitration panel in the United States was established to consider the case.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to commence operations. We have no clear indication how much this sum represents. What legal team is representing it against the state? A sitting MP, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The administration enacts a policy, the national judiciary upholds it, then a international entity challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Case

Concurrently that the court on the mining lawsuit was appointed, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case to date, but it seems likely that he’ll use the arbitration process to contest the restrictions the UK levied against him following the war in Ukraine. He has already initiated proceedings against another European state with similar intent, seeking sixteen billion dollars: an amount representing half state's yearly income. Included in the counsel on his side? Cherie Blair, wife of the previous PM.

Trade specialists believe that the EU’s procrastination in using frozen state funds as security for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Growing Costs

We were assured that such things were not possible. Previously, a former prime minister, advocating for the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” An expert on this matter described campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear ISDS claims. Predictions that “when companies begin to understand the influence they now possess, they will shift their focus from the poorer states to the strong ones” were dismissed with widespread derision.

That threat has now materialised. This year, energy and mining firms have lodged a record number of claims against nations rich and poor, contesting – as in the case of the UK mine – official measures to halt global warming. Firms have thus far won vast sums by using ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP