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Can you perceive our political system functions? It could be along the lines of this. We elect MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. That's it. Yet, that’s how it operated in the past. Not anymore.

The Rise of Shadow Courts

Nowadays, overseas companies, and the wealthy individuals behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of business advocates. These proceedings are held behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses operating from this country. They are open solely for corporations operating from foreign soil.

If a tribunal finds that a law or policy could harm the corporation’s projected profits, it can award financial penalties of vast sums, running into billions.

These sums represent not actual losses but funds the tribunal officials decide the company would perhaps have made. The administration might be compelled to abandon its policy. It is hesitant to passing future laws of a similar nature, worried about facing litigation.

A Process Growing Exponentially

Record numbers of cases are being brought, as firms observe each other, and investment funds fund legal actions for a share of a share of the settlements. The consequence? Sovereignty and democratic governance are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the decisions enacted by parliaments is that this stipulation has been inserted – absent public approval, and typically amid an atmosphere of total confidentiality – into bilateral investment treaties.

A Concrete Example: The Whitehaven Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The judge determined that proposals to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have no impact on our carbon budgets. The new government then withdrew the consent the former government had approved. Today, this victory could be compromised by an offshore tribunal accountable to only the corporations petitioning it.

During August, a corporate entity whose final controllers are based in the offshore financial centre lodged a claim against the UK government. Recently a dispute settlement body in the United States was set up to consider the case.

The claimant is litigating against the UK for the revenue it would have generated if the mine had received permission to go ahead. Citizens have little idea how much this sum represents. Who is acting on its behalf challenging the state? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The government passes a law, the national judiciary supports it, then a overseas corporation contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Lawsuit

On the same day that the panel on the coalmine case was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case so far, but it appears probable that he’ll use the arbitration process to fight the penalties the UK imposed on him after the invasion of Ukraine. He has already filed a claim against Luxembourg with similar intent, demanding $16bn: equivalent to half of government’s yearly budget. Part of the counsel on his side? the wife of a former prime minister, married to the previous PM.

Trade specialists believe that the EU’s hesitation in utilising seized Russian assets as collateral for its loan to Ukraine arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments could be blocking the finance Ukraine urgently requires.

False Assurances and Escalating Costs

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, advocating for the largest and riskiest of all investment pacts, told us: “We’ve signed trade deal upon trade deal and we have never seen a issue in the past.” A consultant on this issue accused activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear ISDS claims. Warnings that “as corporations start to realise the power they now possess, they will turn their attention from the poorer states to the strong ones” were met with scepticism.

That prediction has come to pass. In the current period, energy and resource corporations have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Corporations have to date won $114bn by using ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP