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How do you perceive our system of government operates? It could be similar to this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. However, that’s how it used to work. Not anymore.

The Emergence of Shadow Courts

Today, overseas companies, or the wealthy individuals that control them, are able to litigate against elected administrations for the laws they pass, at private courts composed of business advocates. These proceedings are conducted in secret. Unlike our courts, these panels grant no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, including businesses operating from this country. They are open only to entities operating from foreign soil.

If a tribunal finds that a legislative action could harm the corporation’s expected profits, it may order compensation of hundreds of millions, potentially billions.

This compensation represent not actual losses but compensation the panel members conclude the company might otherwise have made. The government could be forced to rescind the measure. It is discouraged from enacting future policies along the same lines, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms take cues from each other, and private equity fund legal actions for a share of a share of the takings. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the choices made by legislatures is that this provision has been inserted – without democratic mandate, and often in conditions of total confidentiality – inside international trade agreements.

A Real-World Case: The UK Coalmine

A year ago, a conservation group won a great victory at the High Court. The justice determined that plans to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine would have no impact on our carbon budgets. The Labour government subsequently revoked the permission the former government had approved. Now, this legal outcome is under threat by an offshore tribunal reporting to no one but the corporations petitioning it.

During August, a firm whose ultimate owners are located in the offshore financial centre lodged a claim against the UK government. Recently a dispute settlement body in Washington DC was established to adjudicate on it.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to commence operations. The public has no idea how much this might be. What legal team is acting on its behalf challenging the UK administration? A member of parliament, and ex-law officer in the Conservative government, the noted patriot the MP. The government enacts a policy, the high court supports it, then a international entity disputes it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case at present, but it appears probable that he may employ the ISDS mechanism to challenge the penalties the UK imposed on him subsequent to the war in Ukraine. He has already initiated proceedings against Luxembourg on these grounds, demanding a colossal sum: half that government’s yearly budget. Included in the lawyers on his side? a prominent lawyer, married to the former British prime minister.

Trade specialists contend that the EU’s delay in utilising seized 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 bilateral investment treaty. This extraordinary, unaccountable authority over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

Politicians promised that such things could not occur. In 2014, a senior politician, promoting the most significant and hazardous of all such treaties, declared: “The UK has signed investment treaty upon trade deal and there has not been a issue in the past.” An adviser on this matter labelled activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms begin to understand the influence bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were greeted by widespread derision.

That warning has now materialised. Recently, fossil fuel and resource corporations have filed a record number of cases against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – official measures to prevent global warming. Companies have so far won $114bn through ISDS, of which energy giants have secured $84bn. That equates to the combined GDP