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What is your reckon our political system works? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills become law. The law is maintained by the courts. That's it. However, that was how it used to work. No longer.

The Rise of Shadow Courts

Nowadays, international firms, along with the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at private courts made up of commercial attorneys. These proceedings take place away from public scrutiny. Unlike our courts, these panels provide no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, including companies headquartered in this country. The door is open only to corporations registered abroad.

Should an arbitration panel finds that a law or policy might diminish the corporation’s projected profits, it can award financial penalties of vast sums, running into billions.

These sums are based not on actual losses but compensation the arbitrators determine the company could potentially have made. The government could be forced to drop the legislation. It will be hesitant to enacting future policies of a similar nature, worried about incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of cases are being filed, as companies take cues from each other, and hedge funds finance suits for a share of a cut of the awards. The result? Democratic sovereignty and democratic governance are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the decisions enacted by parliaments is that this clause has been incorporated – without democratic mandate, and typically amid a climate of profound opacity – into bilateral investment treaties.

A Real-World Instance: The Cumbrian Coalmine

Last year, a conservation group achieved a major legal triumph at the high court. The presiding officer found that proposals to dig the first major coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have had no impact on our carbon budgets. The Labour government later cancelled the permission the Tories had granted. Today, this legal outcome could be compromised by an offshore tribunal accountable to only the companies bringing the case.

Last August, a corporate entity whose beneficial owners are based in the tax haven lodged a claim versus the UK government. Last week a tribunal in the United States was convened to adjudicate on it.

This firm is suing the UK for the money it could have earned if the mine had been allowed to go ahead. The public has no idea how much this could amount to. Who is representing it challenging the state? A member of parliament, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The state makes a decision, the high court supports it, then a foreign company disputes it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Simultaneously that the court on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it appears probable that he’ll use the arbitration process to fight the penalties the UK enacted against him following the invasion of Ukraine. He has already filed a claim against a small nation with similar intent, demanding a colossal sum: half that nation's yearly budget. Part of the lawyers on his side? Cherie Blair, spouse of the previous PM.

International law scholars argue that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over democratic administrations may be obstructing the funds Ukraine desperately needs.

False Assurances and Mounting Threats

The public was told that these events could not occur. Years ago, a senior politician, advocating for the largest and riskiest of all these agreements, told us: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” An expert on this issue labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the influence they now possess, they will redirect their efforts from the poorer states to the developed economies” were greeted by general mockery.

That threat has come to pass. Recently, fossil fuel and mining firms have initiated a historic level of suits against nations rich and poor, contesting – like the example of the Cumbrian coalmine – official measures to halt global warming. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP