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What is your understand our political system functions? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. That's it. Yet, that was how it operated in the past. No longer.

The Emergence of Shadow Courts

In the modern era, overseas companies, along with the wealthy individuals behind them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. You or I are unable to file a case to them, nor can our government, or even enterprises headquartered in this country. Access is granted solely for entities registered abroad.

Should an arbitration panel finds that a legislative action may compromise the corporation’s expected profits, it can award compensation of vast sums, potentially billions.

This compensation are based not on tangible damages but money the panel members conclude the company could potentially have made. The state could be forced to abandon its policy. It becomes discouraged from enacting future policies in that area, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Historically high figures of disputes are being brought, as firms observe each other, and private equity bankroll lawsuits in exchange for a share of the awards. The result? Democratic sovereignty and democracy are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the choices enacted by parliaments is that this provision has been incorporated – absent public approval, and frequently under conditions of total confidentiality – within bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

Last year, a conservation group secured a significant win at the High Court. The justice determined that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The Labour government then withdrew the consent the former government had approved. Today, this success faces being overturned by an offshore tribunal accountable to exclusively the entities filing the suit.

In August, a firm whose beneficial owners are located in the Cayman Islands filed a lawsuit versus the UK government. The previous week a tribunal in the United States was set up to adjudicate on it.

The company is litigating against the UK for the profits it could have earned if the mine had received permission to proceed. We have no clear indication how much this could amount to. What legal team is representing it challenging the UK administration? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot the MP. The state enacts a policy, the national judiciary supports it, then a international entity disputes it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Concurrently that the court on the coal mine dispute was established, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case so far, but it appears probable that he will utilise the arbitration process to contest the penalties the UK enacted against him following the Russian aggression. He has previously initiated proceedings against Luxembourg for this reason, demanding a colossal sum: equivalent to half of state's yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments may be obstructing the finance Ukraine desperately needs.

Empty Promises and Escalating Threats

The public was told that such things could not occur. Years ago, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” A consultant on this issue described critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear ISDS claims. Warnings that “when companies begin to understand the power they now possess, they will turn their attention from the poorer states to the developed economies” were met with general mockery.

That warning has now materialised. In the current period, oil and gas and resource corporations have lodged a historic level of cases against nations rich and poor, contesting – as in the case of the Cumbrian coalmine – official measures to prevent global warming. Corporations have to date won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP