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How do you reckon our political system functions? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills become law. Legislation is maintained by the courts. Simple as that. However, that’s how it once functioned. No longer.

The Rise of Shadow Courts

In the modern era, foreign corporations, and the billionaires that control them, have the power to sue governments for the policies they pass, at secret arbitration panels staffed by business advocates. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies grant no avenue for appeal or judicial review. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. The door is open solely for entities based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These sums constitute not tangible damages but money the tribunal officials determine the company might otherwise have made. The government could be forced to drop the legislation. It is hesitant to introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being brought, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a share of the settlements. The result? Sovereignty and democracy are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the rulings enacted by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid conditions of extreme secrecy – into trade treaties.

A Real-World Example: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The justice found that plans to dig the first major coal mine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no consequence on our carbon budgets. The new government later cancelled the consent the previous administration had issued. Currently, this victory is under threat by an offshore tribunal answering to no one but the companies filing the suit.

Last August, a company whose final controllers are based in the offshore financial centre initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was convened to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had received permission to go ahead. Citizens have no idea how much this might be. Who is acting on its behalf against the British government? A member of parliament, and ex-law officer in the previous government, the noted patriot the MP. The state makes a decision, the national judiciary upholds it, then a foreign company contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the coal mine dispute was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows scarce of the case to date, but it is highly possible that he may employ the ISDS mechanism to fight the penalties the UK imposed on him after the invasion of Ukraine. He has previously started suing another European state with similar intent, claiming $16bn: an amount representing half nation's yearly budget. Part of the lawyers on his side? a prominent lawyer, married to the ex-UK leader.

International law scholars contend that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations might be preventing the finance Ukraine urgently requires.

False Assurances and Escalating Threats

The public was told that such things were not possible. Previously, a former prime minister, championing the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” An adviser on this topic described campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states had to worry about ISDS claims. Predictions that “when companies start to realise the influence they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were met with scepticism.

That threat has now materialised. Recently, fossil fuel and extraction companies have initiated a unprecedented number of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – official measures to halt global warming. Companies have thus far won vast sums via ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP