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How do you perceive our political system operates? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is obtained, the bills become law. The law are enforced by the courts. That's it. However, that’s how it operated in the past. Not anymore.

The Advent of Shadow Courts

Nowadays, foreign corporations, along with the billionaires behind them, have the power to sue nation states for the regulations they pass, at private courts staffed by business advocates. Such disputes are conducted in secret. Unlike our courts, these tribunals provide no opportunity to appeal or judicial review. The general public cannot take a case to them, and neither can our government, including enterprises headquartered in this country. They are open only to entities operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

This compensation are based not on tangible damages but compensation the arbitrators decide the company could potentially have made. The administration might be compelled to abandon its policy. It will be hesitant to enacting future policies in that area, due to the risk of facing litigation.

A System Running Rampant

Historically high figures of legal actions are being brought, as firms learn from each other, and hedge funds finance suits in exchange for a portion of the awards. The result? Sovereignty and democratic governance are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the decisions made by parliaments is that this provision has been written – without public consent, and typically amid an atmosphere of extreme secrecy – within international trade agreements.

A Specific Case: The UK Coal Mine

Twelve months ago, activists won a great victory at the High Court. The presiding officer ruled that proposals to excavate the first major coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine could have zero effect on climate commitments. The new government then withdrew the licence the former government had issued. Now, this success could be compromised by an offshore tribunal reporting to no one but the entities filing the suit.

During August, a corporate entity whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.

The company is suing the UK for the profits it might have made if the mine had been allowed to commence operations. We have no clear indication how much this might be. Which individual is representing it challenging the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a foreign company contests it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Simultaneously that the court on the coal mine dispute was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he will utilise the ISDS mechanism to challenge the restrictions the UK levied against him subsequent to the war in Ukraine. He has previously filed a claim against a small nation with similar intent, demanding a colossal sum: equivalent to half of state's yearly budget. Included in the legal team representing him there? Cherie Blair, married to the previous PM.

International law scholars believe that the EU’s delay in using frozen state funds as security for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Escalating Risks

Politicians promised that these scenarios were not possible. In 2014, a government leader, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An adviser on this topic accused critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations should be concerned by these lawsuits. Warnings that “once firms start to realise the authority bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were greeted by scepticism.

That warning has now materialised. This year, oil and gas and mining firms have filed a record number of cases against nations rich and poor, opposing – like the example of the Cumbrian coalmine – state efforts to halt climate breakdown. Firms have to date won vast sums through ISDS, of which oil majors have obtained the majority. That represents the combined GDP