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Can you perceive our political system operates? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. However, that was how it once functioned. No longer.

The Advent of Shadow Courts

Nowadays, overseas companies, and the oligarchs behind them, are able to litigate against elected administrations for the regulations they pass, at private courts staffed by corporate lawyers. These proceedings are held in secret. In contrast to domestic courts, these panels allow no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, including businesses operating from this country. The door is open exclusively to businesses registered abroad.

When a secret court finds that a law or policy might diminish the corporation’s expected profits, it may order financial penalties of vast sums, even billions.

These sums constitute not tangible damages but compensation the panel members conclude the company might otherwise have made. The state might be compelled to rescind the measure. It will be deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies learn from each other, and investment funds bankroll lawsuits in exchange for a portion of the settlements. The outcome? National sovereignty and democracy are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the decisions enacted by parliaments is that this provision has been inserted – without public consent, and typically amid a climate of total confidentiality – into trade treaties.

A Concrete Case: The UK Coal Mine

Last year, environmental campaigners won a great victory at the high court. The justice determined that schemes to open the first new deep coal mine in the UK for three decades, in northwest England, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine could have no consequence on climate commitments. The incoming administration subsequently revoked the consent the previous administration had approved. Today, this success faces being overturned by an offshore tribunal reporting to only the entities petitioning it.

Last August, a company whose final controllers are located in the Cayman Islands lodged a claim against the UK government. The previous week a tribunal in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue 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 acting on its behalf against the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government enacts a policy, the national judiciary upholds it, then a foreign company challenges it through an undemocratic private court, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case at present, but it is highly possible that he may employ the ISDS mechanism to fight the restrictions the UK levied against him after the Russian aggression. He has already initiated proceedings against another European state for this reason, claiming sixteen billion dollars: half that government’s yearly budget. Part of the lawyers representing him there? a prominent lawyer, wife of the former British prime minister.

Trade specialists argue that the EU’s delay in leveraging immobilised Russian assets as collateral for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that these scenarios were not possible. Previously, a government leader, championing the most significant and hazardous of all these agreements, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this issue accused campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations had to worry about these lawsuits. Warnings that “as corporations grasp the influence they’ve been granted, they will turn their attention from the poorer states to the strong ones” were met with general mockery.

That warning has come to pass. This year, fossil fuel and mining firms have initiated a unprecedented number of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to halt climate breakdown. Corporations have to date won $114bn by using ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP