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What is your perceive our political system functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is secured, the bills become law. Legislation is upheld by the courts. End of story. However, that’s how it used to work. Those days are over.

The Rise of Shadow Courts

In the modern era, international firms, and the billionaires who own them, can sue elected administrations for the regulations they pass, at private courts composed of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these tribunals allow no avenue for appeal or legal review. The general public are unable to file a case to them, just as our government, or even businesses based in this country. Access is granted solely for businesses operating from foreign soil.

If a tribunal finds that a law or policy might diminish the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

This compensation constitute not actual losses but funds the arbitrators conclude the company would perhaps have made. The administration could be forced to drop the legislation. It will be deterred from introducing similar legislation 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 private equity bankroll lawsuits in return for a share of the awards. The consequence? Sovereignty and democratic governance are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the decisions taken by elected bodies is that this clause has been inserted – without democratic mandate, and frequently under conditions of total confidentiality – within bilateral investment treaties.

A Specific Example: The Cumbrian Coal Mine

A year ago, a conservation group achieved a major legal triumph at the High Court. The justice ruled that plans to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have zero effect on national carbon targets. The incoming administration subsequently revoked the permission the former government had granted. Today, this success could be compromised by an secret arbitration panel reporting to no one but the companies petitioning it.

In August, a firm whose ultimate owners are based in the offshore financial centre lodged a claim against the UK government. Recently a dispute settlement body in the United States was convened to hear it.

The company is litigating against the UK for the revenue it could have earned if the mine had been allowed to commence operations. We have little idea how much this might be. What legal team is representing it against the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The government passes a law, the high court upholds it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

On the same day that the court on the coalmine case was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know scarce of the case so far, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK imposed on him after the Russian aggression. He has previously started suing another European state with similar intent, claiming a colossal sum: equivalent to half of government’s annual revenue. Part of the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars believe that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine desperately needs.

False Assurances and Mounting Threats

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade deal upon trade deal and there has never been a issue in the past.” An adviser on this issue labelled activists of “alarmism … in reality, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies start to realise the influence bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were dismissed with general mockery.

That threat has come to pass. This year, fossil fuel and extraction companies have initiated a historic level of cases against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – official measures to stop climate breakdown. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP