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Can you reckon our political system operates? Maybe something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. End of story. However, that used to be how it operated in the past. Not anymore.

The Advent of Shadow Courts

Nowadays, foreign corporations, and the billionaires behind them, are able to litigate against governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these bodies grant no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, including companies operating from this country. Access is granted only to entities based overseas.

If a tribunal finds that a legislative action may compromise the corporation’s expected profits, it can award damages of vast sums, potentially billions.

These awards represent not tangible damages but funds the panel members decide the company could potentially have made. The administration could be forced to drop the legislation. It will be deterred from enacting future policies in that area, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms learn from each other, and private equity bankroll lawsuits in exchange for a share of the awards. The consequence? Democratic sovereignty and popular rule are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the rulings taken by legislatures is that this clause has been inserted – without democratic mandate, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Real-World Case: The UK Coalmine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice ruled that plans to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have had zero effect on climate commitments. The incoming administration subsequently revoked the permission the previous administration had granted. Now, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the companies bringing the case.

In August, a firm whose final controllers reside in the offshore financial centre initiated proceedings challenging the UK government. Recently a dispute settlement body in the United States was set up to adjudicate on it.

The claimant is litigating against the UK for the money it might have made if the mine had received permission to commence operations. The public has no clear indication how much this might be. What legal team is serving as its counsel challenging the state? A member of parliament, and ex-law officer in the Conservative government, that great patriot the MP. The state makes a decision, the high court supports it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a elected official works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the coalmine case was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case to date, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him following the invasion of Ukraine. He has already started suing Luxembourg on these grounds, seeking $16bn: an amount representing half state's yearly budget. Among the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

International law scholars believe that the EU’s procrastination in using frozen oligarchs' funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine urgently requires.

Misleading Claims and Mounting Costs

Politicians promised that these events could not occur. Years ago, a senior politician, advocating for the largest and riskiest of all these agreements, stated: “Britain has agreed to trade deal after trade deal and there has never been a case in the past.” An adviser on this topic labelled activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by 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 wealthy nations” were greeted by scepticism.

That threat has now materialised. This year, energy and resource corporations have filed a record number of suits against nations rich and poor, challenging – similar to the UK mine – official measures to stop global warming. Firms have so far won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP