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How do you perceive our political system operates? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills become law. Legislation is upheld by the courts. Simple as that. Yet, that’s how it once functioned. Not anymore.

The Rise of Shadow Courts

Today, overseas companies, or the billionaires behind them, are able to litigate against elected administrations for the policies they pass, at private courts staffed by business advocates. The cases take place behind closed doors. Differing from national judiciaries, these panels allow no avenue for appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even enterprises operating from this country. They are open only to businesses based overseas.

If a tribunal determines that a law or policy might diminish the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

These sums represent not tangible damages but compensation the arbitrators conclude the company might otherwise have made. The state might be compelled to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as companies learn from each other, and hedge funds fund legal actions for a share of a cut of the takings. The consequence? Democratic sovereignty and democratic governance are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the decisions enacted by legislatures is that this stipulation has been incorporated – without public consent, and often in an atmosphere of extreme secrecy – into international trade agreements.

A Concrete Instance: The UK Coal Mine

Last year, activists achieved a major legal triumph at the High Court. The presiding officer found that schemes to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine could have no consequence on climate commitments. The Labour government then withdrew the consent the former government had approved. Currently, this legal outcome could be compromised by an foreign court answering to only the companies bringing the case.

In August, a firm whose ultimate owners reside in the Cayman Islands initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was convened to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had received permission to proceed. We have little idea how much this might be. Who is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP works for its behalf.

The Russian Case

Simultaneously that the court on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case at present, but it is highly possible that he’ll use the tribunal to fight the restrictions the UK enacted against him following the invasion of Ukraine. He has filed a claim against another European state on these grounds, seeking a colossal sum: an amount representing half government’s annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, married to the previous PM.

Trade specialists argue that the EU’s procrastination in using frozen oligarchs' funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over sovereign states may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Growing Risks

Politicians promised that these events were not possible. Previously, a senior politician, advocating for the most significant and hazardous of all such treaties, stated: “We’ve signed trade deal upon trade deal and there has not been a case in the past.” An adviser on this issue accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the authority they now possess, they will shift their focus from the poorer states to the wealthy nations” were greeted by general mockery.

That warning is now a reality. This year, energy and mining firms have initiated a unprecedented number of suits against nations across the economic spectrum, challenging – like the example of the Whitehaven project – government attempts to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP