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How do you reckon our political system works? Perhaps similar to this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that used to be how it used to work. Not anymore.

The Emergence of Shadow Courts

Nowadays, international firms, along with the billionaires behind them, are able to litigate against governments for the laws they pass, at offshore tribunals made up of commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these bodies grant no opportunity to appeal or legal review. You or I are unable to file a case to them, nor can our government, or even businesses headquartered in this country. Access is granted solely for entities based overseas.

When a secret court rules that a government measure might diminish the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but money the panel members determine the company could potentially have made. The government may have to abandon its policy. It is discouraged from introducing similar legislation along the same lines, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being brought, as firms observe each other, and hedge funds bankroll lawsuits in return for a cut of the awards. The consequence? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the choices taken by elected bodies is that this provision has been incorporated – without public consent, and frequently under a climate of total confidentiality – inside bilateral investment treaties.

A Concrete Case: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The judge determined that schemes to excavate the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no impact on climate commitments. The incoming administration later cancelled the consent the former government had issued. Today, this victory faces being overturned by an foreign court answering to only the companies bringing the case.

Last August, a firm whose ultimate owners are based in the Cayman Islands lodged a claim against the UK government. Last week a arbitration panel in the US capital was established to consider the case.

The claimant is suing the UK for the money it could have earned if the mine had received permission to go ahead. The public has no idea how much this sum represents. What legal team is representing it challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a foreign company contests it through an secretive private court, and a member of our parliament acts on its behalf.

The Russian Case

On the same day that the court on the coalmine case was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK enacted against him subsequent to the Russian aggression. He has initiated proceedings against a small nation for this reason, claiming a colossal sum: half that state's annual revenue. Among the counsel acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s delay in utilising seized state funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that such things wouldn’t happen. Years ago, a former prime minister, advocating for the most significant and hazardous of all such treaties, declared: “Britain has agreed to trade deal after trade deal and there has never been a issue in the past.” An expert on this issue described activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Predictions that “as corporations start to realise the authority they now possess, they will shift their focus from the poorer states to the wealthy nations” were met with scepticism.

That warning has come to pass. In the current period, energy and resource corporations have lodged a record number of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to stop global warming. Corporations have so far won $114bn through ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP