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Can you perceive our political system works? It could be similar to this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Statutes is maintained by the courts. End of story. Yet, that’s how it operated in the past. No longer.

The Emergence of Shadow Courts

Nowadays, foreign corporations, along with the billionaires that control them, have the power to sue nation states for the policies they pass, at offshore tribunals composed of commercial attorneys. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these panels grant no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. Access is granted exclusively to businesses registered abroad.

If a tribunal determines that a law or policy might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, even billions.

These sums represent not tangible damages but compensation the panel members determine the company might otherwise have made. The administration could be forced to drop the legislation. It becomes hesitant to enacting future policies of a similar nature, due to the risk of facing litigation.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as corporations take cues from each other, and private equity bankroll lawsuits for a share of a portion of the takings. The result? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the rulings taken by parliaments is that this stipulation has been inserted – without public consent, and frequently under an atmosphere of extreme secrecy – into trade treaties.

A Real-World Example: The UK Coalmine

Last year, activists achieved a major legal triumph at the high court. The justice determined that schemes to open the first deep coalmine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have no consequence on our carbon budgets. The incoming administration later cancelled the licence the Tories had approved. Now, this legal outcome could be compromised by an offshore tribunal reporting to no one but the entities filing the suit.

During August, a firm whose beneficial owners are located in the tax haven lodged a claim against the UK government. Last week a tribunal in Washington DC was convened to hear it.

The claimant is litigating against the UK for the money it could have earned if the mine had been permitted to commence operations. The public has no clear indication how much this sum represents. What legal team is serving as its counsel challenging the British government? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The administration passes a law, the domestic court validates it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

Concurrently that the court on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. The public knows little of the case to date, but it seems likely that he will utilise the tribunal to challenge the sanctions the UK levied against him after the war in Ukraine. He has already started suing Luxembourg with similar intent, demanding sixteen billion dollars: equivalent to half of state's yearly income. Among the legal team representing him there? a prominent lawyer, wife of the previous PM.

Legal experts contend that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its financial support package is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations could be blocking the finance Ukraine desperately needs.

Misleading Claims and Mounting Costs

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, championing the largest and riskiest of all these agreements, declared: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this issue accused campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about these lawsuits. Warnings that “as corporations grasp the authority bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with widespread derision.

That warning is now a reality. In the current period, oil and gas and resource corporations have initiated a record number of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to stop environmental catastrophe. Corporations have thus far won $114bn by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP