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Can you understand our political system works? It could be similar to this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills become law. Statutes are enforced by the courts. That's it. Yet, that was how it once functioned. Those days are over.

The Advent of Shadow Courts

In the modern era, international firms, along with the wealthy individuals that control them, can sue elected administrations for the laws they pass, at offshore tribunals staffed by business advocates. These proceedings are conducted away from public scrutiny. Unlike our courts, these bodies provide no avenue for appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, including businesses based in this country. The door is open only to corporations operating from foreign soil.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, potentially billions.

These awards represent not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The government may have to abandon its policy. It will be discouraged from enacting future policies in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being filed, as corporations learn from each other, and hedge funds fund legal actions in return for a portion of the takings. The outcome? Sovereignty and popular rule are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the decisions made by legislatures is that this clause has been incorporated – without public consent, and typically amid a climate of profound opacity – into bilateral investment treaties.

A Real-World Instance: The Whitehaven Coalmine

Last year, activists won a great victory at the senior court. The justice found that proposals to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the consent the former government had granted. Currently, this victory could be compromised by an offshore tribunal reporting to exclusively the companies petitioning it.

During August, a company whose beneficial owners are located in the tax haven initiated proceedings against the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

The company is suing the UK for the revenue it might have made if the mine had received permission to proceed. We have no clear indication how much this might be. Who is serving as its counsel challenging the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot the MP. The government enacts a policy, the domestic court upholds it, then a international entity contests it through an unaccountable private court, and a member of our parliament acts on its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case to date, but it appears probable that he’ll use the arbitration process to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously started suing a small nation for this reason, seeking sixteen billion dollars: half that nation's yearly budget. Among the counsel acting for him in that case? Cherie Blair, married to the former British prime minister.

Legal experts contend that the EU’s hesitation in using frozen state funds as collateral for its financial support package is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over sovereign states might be preventing the funds Ukraine urgently requires.

Misleading Claims and Growing Threats

The public was told that these scenarios wouldn’t happen. Previously, a government leader, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed trade deal upon trade deal and we have never seen a issue in the past.” An expert on this issue accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies grasp the authority they now possess, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That prediction has come to pass. This year, fossil fuel and resource corporations have initiated a record number of claims against nations across the economic spectrum, opposing – as in the case of the UK mine – official measures to halt climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP