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Can you understand our political system operates? It could be something like this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. End of story. Well, that used to be how it used to work. No longer.

The Emergence of Shadow Courts

Today, overseas companies, along with the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes take place away from public scrutiny. In contrast to domestic courts, these panels grant no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even enterprises based in this country. The door is open solely for entities operating from foreign soil.

When a secret court rules that a legislative action could harm the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

This compensation represent not actual losses but funds the panel members decide the company would perhaps have made. The government might be compelled to drop the legislation. It will be discouraged from passing future laws along the same lines, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The result? Sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the choices taken by legislatures is that this clause has been inserted – without public consent, and often in an atmosphere of extreme secrecy – within bilateral investment treaties.

A Specific Instance: The Whitehaven Coal Mine

A year ago, a conservation group won a great victory at the high court. The justice ruled that plans to open the first deep coalmine in the UK for 30 years, in Cumbria, were unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the permission the Tories had approved. Today, this success faces being overturned by an offshore tribunal answering to only the entities filing the suit.

Last August, a firm whose ultimate owners are based in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in the US capital was set up to hear it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had received permission to proceed. Citizens have no clear indication how much this sum represents. Which individual is representing it against the UK administration? A member of parliament, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the domestic court upholds it, then a international entity disputes it through an unaccountable arbitration panel, and a sitting MP represents its behalf.

A Sanctions Case

On the same day that the tribunal on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it appears probable that he may employ the arbitration process to contest the sanctions the UK imposed on him after the war in Ukraine. He has previously filed a claim against a small nation with similar intent, seeking a colossal sum: an amount representing half nation's annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists believe that the EU’s hesitation in using frozen state funds as collateral for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

Empty Promises and Mounting Threats

Politicians promised that such things were not possible. In 2014, a government leader, promoting the most significant and hazardous of all investment pacts, declared: “The UK has signed trade agreement upon trade deal and there has not been a problem in the past.” A consultant on this issue labelled campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “once firms grasp the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That threat is now a reality. In the current period, oil and gas and extraction companies have filed a record number of suits against nations across the economic spectrum, opposing – as in the case of the UK mine – state efforts to stop environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained the majority. That equates to the combined GDP