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How do you understand our political system works? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills become law. The law is maintained by the courts. Simple as that. However, that used to be how it used to work. No longer.

The Emergence of Shadow Courts

Today, foreign corporations, along with the wealthy individuals that control them, have the power to sue governments for the policies they pass, at secret arbitration panels staffed by business advocates. Such disputes take place in secret. In contrast to domestic courts, these tribunals allow no right of appeal or judicial review. You or I cannot take a case to them, just as our government, or even businesses operating from this country. The door is open only to businesses operating from foreign soil.

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

These sums constitute not actual losses but funds the panel members determine the company would perhaps have made. The administration might be compelled to rescind the measure. It is hesitant to introducing similar legislation of a similar nature, worried about being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being brought, as corporations take cues from each other, and private equity bankroll lawsuits in exchange for a cut of the takings. The outcome? Sovereignty and democratic governance are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the rulings enacted by legislatures is that this clause has been written – without public consent, and typically amid conditions of profound opacity – into bilateral investment treaties.

A Specific Instance: The UK Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The justice ruled that proposals to open the first deep coalmine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have had no consequence on climate commitments. The Labour government subsequently revoked the licence the previous administration had issued. Now, this legal outcome could be compromised by an foreign court accountable to exclusively the entities filing the suit.

In August, a corporate entity whose beneficial owners are based in the tax haven lodged a claim versus the UK government. Recently a tribunal in Washington DC was set up to hear it.

The claimant is litigating against the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no clear indication how much this might be. What legal team is representing it challenging the UK administration? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary supports it, then a international entity disputes it through an undemocratic private court, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the court on the coalmine case was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case so far, but it seems likely that he may employ the ISDS mechanism to contest the penalties the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against Luxembourg on these grounds, seeking $16bn: equivalent to half of government’s annual revenue. Among the legal team representing him there? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists contend that the EU’s delay in leveraging immobilised oligarchs' 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 investment pact. This remarkable, undemocratic power over democratic administrations might be preventing the funds Ukraine critically depends on.

Misleading Claims and Mounting Costs

We were assured that these events wouldn’t happen. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, stated: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An expert on this matter labelled campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “as corporations start to realise the power they now possess, they will shift their focus from the poorer states to the developed economies” were dismissed with widespread derision.

That prediction is now a reality. Recently, oil and gas and mining firms have lodged a historic level of suits against nations rich and poor, challenging – similar to the UK mine – government attempts to halt environmental catastrophe. Firms have thus far won $114bn by using ISDS, of which oil majors have obtained the majority. That represents the combined GDP