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How do you understand our political system functions? It could be something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills pass into law. Legislation is upheld by the courts. That's it. Well, that used to be how it used to work. Those days are over.

The Emergence of Shadow Courts

Nowadays, foreign corporations, and the wealthy individuals that control them, can sue elected administrations for the policies they pass, at offshore tribunals staffed by business advocates. These proceedings take place in secret. In contrast to domestic courts, these panels grant no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, including enterprises operating from this country. Access is granted solely for entities operating from foreign soil.

Should an arbitration panel determines that a law or policy may compromise the corporation’s expected profits, it can award financial penalties of vast sums, potentially billions.

This compensation constitute not actual losses but funds the tribunal officials determine the company might otherwise have made. The state might be compelled to rescind the measure. It is deterred from passing future laws along the same lines, for fear of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of cases are being brought, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the takings. The consequence? Sovereignty and democratic governance are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the rulings made by legislatures is that this clause has been inserted – absent public approval, and frequently under conditions of profound opacity – within trade treaties.

A Real-World Instance: The UK Coal Mine

A year ago, a conservation group secured a significant win at the high court. The presiding officer determined that proposals to dig the first major coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The incoming administration later cancelled the licence the Tories had approved. Today, this victory faces being overturned by an foreign court accountable to no one but the companies filing the suit.

Last August, a firm whose beneficial owners reside in the tax haven lodged a claim challenging the UK government. Last week a dispute settlement body in Washington DC was set up to adjudicate on it.

This firm is suing the UK for the profits it could have earned if the mine had received permission to proceed. Citizens have no idea how much this might be. Which individual is representing it challenging the UK administration? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a elected official works for its behalf.

The Russian Case

Simultaneously that the court on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK imposed on him subsequent to the Russian aggression. He has already started suing Luxembourg for this reason, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Included in the legal team representing him there? a prominent lawyer, wife of the former British prime minister.

Legal experts contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, championing the most significant and hazardous of all these agreements, told us: “We’ve signed trade agreement upon trade deal and we have never seen a issue in the past.” An adviser on this matter labelled critics of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “as corporations begin to understand the influence they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat is now a reality. In the current period, fossil fuel and mining firms have initiated a historic level of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – government attempts to stop climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP