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What is your understand our political system operates? Perhaps similar to this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills become law. Legislation is upheld by the courts. That's it. Well, that’s how it once functioned. Not anymore.

The Advent of Shadow Courts

Nowadays, international firms, or the wealthy individuals behind them, are able to litigate against governments for the regulations they pass, at private courts made up of business advocates. Such disputes take place in secret. Differing from national judiciaries, these bodies provide no avenue for appeal or judicial review. You or I cannot take a case to them, and neither can our government, including businesses headquartered in this country. Access is granted only to entities operating from foreign soil.

When a secret court finds that a government measure could harm the corporation’s anticipated profits, it can award damages of vast sums, even billions.

These sums are based not on real financial harm but money the panel members determine the company would perhaps have made. The administration could be forced to drop the legislation. It is deterred from introducing similar legislation in that area, due to the risk of facing litigation.

A System Running Rampant

Unprecedented levels of cases are being brought, as companies take cues from each other, and hedge funds fund legal actions in return for a portion of the awards. The consequence? National sovereignty and democracy are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the decisions taken by elected bodies is that this clause has been inserted – without democratic mandate, and frequently under a climate of total confidentiality – into international trade agreements.

A Concrete Example: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice determined that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have no consequence on climate commitments. The new government then withdrew the consent the previous administration had granted. Now, this victory could be compromised by an foreign court accountable to only the entities petitioning it.

In August, a corporate entity whose final controllers are located in the Cayman Islands initiated proceedings challenging the UK government. Last week a dispute settlement body in the US capital was established to hear it.

The company is litigating against the UK for the money it could have earned if the mine had been permitted to go ahead. Citizens have no clear indication how much this might be. What legal team is serving as its counsel against the British government? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a overseas corporation challenges it through an secretive arbitration panel, and a sitting MP works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the mining lawsuit was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case so far, but it appears probable that he’ll use the arbitration process to contest the restrictions the UK enacted against him after the invasion of Ukraine. He has already filed a claim against a small nation with similar intent, claiming a colossal sum: equivalent to half of state's annual revenue. Part of the counsel representing him there? a prominent lawyer, spouse of the previous PM.

Trade specialists argue that the EU’s delay in using frozen oligarchs' funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over sovereign states may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Mounting Threats

We were assured that such things could not occur. Years ago, a government leader, promoting the most significant and hazardous of all investment pacts, stated: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this matter labelled campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about such legal actions. Warnings that “as corporations grasp the authority they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning has now materialised. In the current period, fossil fuel and resource corporations have filed a record number of suits against nations rich and poor, contesting – as in the case of the UK mine – government attempts to stop climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP