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What is your understand our system of government works? Maybe something like this. We elect MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Courts

Today, overseas companies, along with the wealthy individuals who own them, can sue elected administrations for the laws they pass, at private courts made up of corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, including companies operating from this country. The door is open only to businesses registered abroad.

Should an arbitration panel determines that a law or policy may compromise the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but money the tribunal officials conclude the company would perhaps have made. The state may have to drop the legislation. It becomes discouraged from passing future laws of a similar nature, worried about incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of legal actions are being filed, as companies take cues from each other, and hedge funds bankroll lawsuits in return for a portion of the settlements. The result? National sovereignty and democracy are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the rulings enacted by parliaments is that this clause has been written – without public consent, and typically amid a climate of profound opacity – inside international trade agreements.

A Concrete Case: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The presiding officer found that proposals to excavate the first deep coalmine in the UK for a generation, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have zero effect on our carbon budgets. The Labour government later cancelled the permission the previous administration had approved. Today, this victory faces being overturned by an offshore tribunal reporting to only the corporations petitioning it.

Last August, a company whose ultimate owners reside in the Cayman Islands filed a lawsuit versus the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

The company is seeking compensation from the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no clear indication how much this sum represents. Who is serving as its counsel in opposition to the British government? A sitting MP, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The state enacts a policy, the high court upholds it, then a international entity challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case at present, but it seems likely that he may employ the tribunal to fight the restrictions the UK enacted against him after the invasion of Ukraine. He has already started suing a small nation on these grounds, demanding sixteen billion dollars: an amount representing half state's yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Legal experts contend that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states might be preventing the finance Ukraine urgently requires.

Empty Promises and Mounting Risks

Politicians promised that such things wouldn’t happen. In 2014, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” An adviser on this topic described campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations start to realise the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were met with widespread derision.

That warning is now a reality. Recently, oil and gas and mining firms have filed a unprecedented number of suits against nations rich and poor, challenging – like the example of the Whitehaven project – government attempts to halt climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP