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What is your perceive our political system works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Statutes are enforced by the courts. That's it. However, that was how it once functioned. No longer.

The Rise of Shadow Courts

Nowadays, foreign corporations, along with the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at offshore tribunals made up of commercial attorneys. Such disputes take place away from public scrutiny. In contrast to domestic courts, these bodies allow no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. The door is open only to entities registered abroad.

When a secret court finds that a government measure could harm the corporation’s anticipated profits, it may order compensation of hundreds of millions, running into billions.

These awards are based not on tangible damages but funds the panel members decide the company might otherwise have made. The administration might be compelled to drop the legislation. It is hesitant to enacting future policies in that area, for fear of being sued.

A Process Spiralling Out of Control

Unprecedented levels of cases are being brought, as companies observe each other, and investment funds bankroll lawsuits in exchange for a cut of the settlements. The outcome? Democratic sovereignty and democratic governance are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the choices taken by legislatures is that this clause has been written – without public consent, and frequently under conditions of total confidentiality – inside trade treaties.

A Concrete Instance: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The justice ruled that plans to dig the first deep coalmine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have zero effect on our carbon budgets. The incoming administration later cancelled the licence the Tories had issued. Now, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the corporations filing the suit.

During August, a company whose final controllers are based in the Cayman Islands initiated proceedings challenging the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

The company is suing the UK for the revenue it would have generated if the mine had been permitted to proceed. We have no idea how much this could amount to. Who is serving as its counsel challenging the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a international entity contests it through an secretive offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

Simultaneously that the court on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know scarce of the case so far, but it is highly possible that he may employ the tribunal to contest the penalties the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against another European state for this reason, demanding a colossal sum: an amount representing half government’s yearly income. Included in the counsel on his side? the wife of a former prime minister, wife of the previous PM.

Trade specialists argue that the EU’s delay in utilising seized oligarchs' funds as collateral for its financial support package arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over sovereign states may be obstructing the money Ukraine critically depends on.

Empty Promises and Escalating Costs

The public was told that such things could not occur. In 2014, a former prime minister, championing the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal after trade deal and we have never seen a problem in the past.” An expert on this topic labelled critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “when companies begin to understand the influence bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were greeted by general mockery.

That warning has come to pass. This year, energy and resource corporations have filed a historic level of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – official measures to prevent environmental catastrophe. Corporations have so far won vast sums through ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP