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How do you reckon our system of government operates? Maybe something like this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills become law. The law is maintained by the courts. That's it. Well, that used to be how it operated in the past. No longer.

The Emergence of Shadow Courts

Nowadays, foreign corporations, along with the billionaires behind them, are able to litigate against elected administrations for the regulations they pass, at private courts staffed by business advocates. Such disputes are conducted behind closed doors. Unlike our courts, these panels allow no right of appeal or judicial review. You or I are unable to file a case to them, nor can our government, or even enterprises operating from this country. The door is open solely for businesses based overseas.

If a tribunal determines that a government measure might diminish the corporation’s projected profits, it may order damages of vast sums, potentially billions.

These awards constitute not real financial harm but funds the panel members conclude the company could potentially have made. The state could be forced to rescind the measure. It becomes hesitant to enacting future policies along the same lines, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of cases are being brought, as firms learn from each other, and hedge funds fund legal actions for a share of a cut of the settlements. The consequence? Sovereignty and popular rule are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the choices made by elected bodies is that this clause has been written – without public consent, and often in an atmosphere of profound opacity – within international trade agreements.

A Real-World Example: The UK Coal Mine

Twelve months ago, activists won a great victory at the High Court. The presiding officer ruled that schemes to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have no consequence on our carbon budgets. The Labour government then withdrew the licence the previous administration had approved. Now, this legal outcome could be compromised by an foreign court reporting to only the entities bringing the case.

During August, a company whose final controllers are based in the offshore financial centre filed a lawsuit against the UK government. Last week a arbitration panel in Washington DC was set up to hear it.

This firm is seeking compensation from the UK for the profits it might have made if the mine had received permission to commence operations. The public has no clear indication how much this could amount to. Who is acting on its behalf challenging the British government? A member of parliament, and ex-law officer in the Conservative government, the noted patriot the MP. The government enacts a policy, the high court validates it, then a foreign company disputes it through an secretive private court, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the mining lawsuit was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case at present, but it is highly possible that he will utilise the arbitration process to challenge the restrictions the UK levied against him after the Russian aggression. He has already initiated proceedings against Luxembourg for this reason, demanding $16bn: equivalent to half of government’s annual revenue. Included in the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists believe that the EU’s procrastination in leveraging immobilised state funds as security for its aid for Ukraine arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over democratic administrations could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Costs

Politicians promised that these scenarios wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all such treaties, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this topic described campaigners of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by ISDS claims. Warnings that “when companies grasp the power bestowed upon them, they will shift their focus from the weak nations to the developed economies” were dismissed with general mockery.

That prediction is now a reality. Recently, oil and gas and resource corporations have lodged a historic level of cases against nations rich and poor, opposing – like the example of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Firms have so far won $114bn via ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP