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How do you understand our political system functions? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Statutes are enforced by the courts. End of story. However, that’s how it once functioned. Not anymore.

The Advent of Shadow Courts

Nowadays, international firms, and the wealthy individuals who own them, can sue nation states for the regulations they pass, at private courts made up of corporate lawyers. Such disputes are held in secret. Differing from national judiciaries, these panels provide no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, or even companies based in this country. The door is open only to corporations registered abroad.

When a secret court finds that a legislative action might diminish the corporation’s projected profits, it may order compensation of vast sums, running into billions.

This compensation are based not on tangible damages but compensation the panel members conclude the company could potentially have made. The administration might be compelled to drop the legislation. It will be hesitant to introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being initiated, as firms observe each other, and hedge funds bankroll lawsuits for a share of a share of the settlements. The consequence? Sovereignty and popular rule are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the rulings made by elected bodies is that this clause has been inserted – absent public approval, and frequently under an atmosphere of total confidentiality – inside trade treaties.

A Concrete Case: The UK Coalmine

Twelve months ago, a conservation group secured a significant win at the senior court. The presiding officer ruled that schemes to dig the first major coal mine in the UK for three decades, in Cumbria, had been unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have had zero effect on national carbon targets. The new government subsequently revoked the permission the Tories had issued. Today, this success could be compromised by an foreign court reporting to exclusively the corporations filing the suit.

Last August, a firm whose final controllers reside in the Cayman Islands initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC was set up to consider the case.

The claimant is litigating against the UK for the profits it might have made if the mine had received permission to go ahead. The public has no idea how much this might be. What legal team is representing it against the UK administration? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a international entity contests it through an secretive private court, and a elected official acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the mining lawsuit was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case to date, but it is highly possible that he may employ the arbitration process to fight the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has previously filed a claim against another European state on these grounds, claiming a colossal sum: equivalent to half of nation's yearly income. Among the legal team representing him there? the wife of a former prime minister, married to the former British prime minister.

Legal experts contend that the EU’s delay in utilising seized oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over sovereign states may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Escalating Threats

We were assured that these scenarios wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” A consultant on this issue described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has now materialised. In the current period, fossil fuel and resource corporations have initiated a unprecedented number of suits against nations across the economic spectrum, challenging – as in the case of the UK mine – official measures to prevent climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP