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How do you understand our political system works? It could be similar to this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Statutes are enforced by the courts. End of story. Yet, that’s how it operated in the past. Not anymore.

The Rise of Shadow Tribunals

Today, overseas companies, and the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at private courts composed of business advocates. The cases are conducted behind closed doors. Unlike our courts, these panels grant no opportunity to appeal or legal review. The general public cannot take a case to them, and neither can our government, or even companies operating from this country. Access is granted only to businesses registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s projected profits, it may order financial penalties of vast sums, running into billions.

This compensation represent not actual losses but compensation the tribunal officials conclude the company would perhaps have made. The state might be compelled to abandon its policy. It becomes deterred from passing future laws of a similar nature, worried about being sued.

A System Growing Exponentially

Historically high figures of legal actions are being filed, as firms take cues from each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The outcome? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the rulings made by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under conditions of profound opacity – inside trade treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, activists secured a significant win at the senior court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have no consequence on national carbon targets. The new government then withdrew the licence the previous administration had approved. Currently, this success faces being overturned by an offshore tribunal accountable to only the entities filing the suit.

In August, a firm whose ultimate owners reside in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in the United States was established to adjudicate on it.

This firm is suing the UK for the revenue it would have generated if the mine had been allowed to go ahead. We have no clear indication how much this sum represents. What legal team is representing it challenging the British government? A sitting MP, and former attorney-general in the outgoing administration, that great patriot the MP. The state enacts a policy, the national judiciary validates it, then a foreign company contests it through an secretive arbitration panel, and a sitting MP represents its behalf.

The Russian Case

Simultaneously that the panel on the mining lawsuit was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it seems likely that he may employ the arbitration process to challenge the sanctions the UK imposed on him subsequent to the Russian aggression. He has started suing another European state on these grounds, seeking $16bn: equivalent to half of nation's annual revenue. Part of the counsel representing him there? a prominent lawyer, married to the former British prime minister.

International law scholars argue that the EU’s hesitation in using frozen state funds as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

We were assured that these events were not possible. Years ago, a former prime minister, advocating for the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” An adviser on this issue labelled activists of “alarmism … 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. Cautionary notes that “once firms start to realise the authority they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were met with scepticism.

That prediction is now a reality. In the current period, energy and resource corporations have lodged a record number of claims against nations across the economic spectrum, contesting – like the example of the UK mine – official measures to prevent climate breakdown. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP