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Can you reckon our political system operates? Perhaps similar to this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it used to work. Not anymore.

The Emergence of Shadow Courts

Today, international firms, along with the billionaires that control them, have the power to sue elected administrations for the policies they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are conducted behind closed doors. Differing from national judiciaries, these panels grant no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, including companies based in this country. The door is open solely for entities operating from foreign soil.

When a secret court finds that a law or policy could harm the corporation’s expected profits, it may order financial penalties of vast sums, running into billions.

These sums are based not on real financial harm but money the tribunal officials decide the company could potentially have made. The government may have to drop the legislation. It becomes discouraged from introducing similar legislation in that area, for fear of facing litigation.

A System Running Rampant

Historically high figures of cases are being filed, as corporations observe each other, and private equity finance suits in return for a portion of the takings. The outcome? National sovereignty and democratic governance are now too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the decisions taken by parliaments is that this provision has been incorporated – without democratic mandate, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the high court. The judge determined that proposals to open the first new deep coal mine in the UK for three decades, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on our carbon budgets. The incoming administration later cancelled the consent the former government had granted. Today, this victory could be compromised by an foreign court answering to exclusively the companies petitioning it.

In August, a company whose ultimate owners are located in the tax haven lodged a claim against the UK government. Recently a tribunal in the United States was set up to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. Which individual is representing it challenging the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

A Sanctions Challenge

Concurrently that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know nothing of the case so far, but it is highly possible that he may employ the arbitration process to contest the penalties the UK enacted against him after the Russian aggression. He has filed a claim against a small nation on these grounds, seeking a colossal sum: an amount representing half nation's yearly income. Included in the legal team acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Trade specialists believe that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Threats

The public was told that such things were not possible. Previously, a government leader, championing the largest and riskiest of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this issue accused critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “when companies begin to understand the influence bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were greeted by scepticism.

That warning is now a reality. In the current period, energy and resource corporations have lodged a unprecedented number of suits against nations rich and poor, challenging – similar to the UK mine – government attempts to stop climate breakdown. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP