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How do you perceive our political system functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. The law is maintained by the courts. Simple as that. However, that’s how it operated in the past. Not anymore.

The Advent of Shadow Courts

In the modern era, foreign corporations, and the wealthy individuals that control them, can sue governments for the policies they pass, at offshore tribunals made up of commercial attorneys. The cases are held behind closed doors. In contrast to domestic courts, these bodies allow no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. The door is open only to corporations registered abroad.

Should an arbitration panel determines that a law or policy might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

These sums represent not tangible damages but compensation the arbitrators conclude the company would perhaps have made. The administration could be forced to drop the legislation. It becomes discouraged from enacting future policies in that area, for fear of being sued.

A System Running Rampant

Record numbers of disputes are being brought, as corporations learn from each other, and hedge funds fund legal actions in exchange for a cut of the takings. The outcome? Democratic sovereignty and democracy are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the decisions taken by parliaments is that this stipulation has been incorporated – without public consent, and frequently under an atmosphere of profound opacity – inside trade treaties.

A Specific Instance: The Cumbrian Coalmine

Last year, activists achieved a major legal triumph at the high court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The incoming administration then withdrew the permission the former government had granted. Currently, this success faces being overturned by an secret arbitration panel answering to only the corporations petitioning it.

In August, a corporate entity whose ultimate owners are located in the Cayman Islands initiated proceedings versus the UK government. Last week a tribunal in Washington DC was set up to adjudicate on it.

The company is suing the UK for the money it could have earned if the mine had been permitted to go ahead. Citizens have no clear indication how much this sum represents. Who is acting on its behalf in opposition to the UK administration? A sitting MP, and ex-law officer in the Conservative government, that great patriot the MP. The state enacts a policy, the domestic court validates it, then a overseas corporation disputes it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

The Russian Challenge

Concurrently that the tribunal on the coalmine case was established, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he may employ the ISDS mechanism to fight the penalties the UK enacted against him following the Russian aggression. He has previously initiated proceedings against another European state on these grounds, seeking a colossal sum: an amount representing half nation's annual revenue. Part of the legal team on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s delay in using frozen state funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that such things were not possible. Years ago, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “Britain has agreed to trade agreement upon trade deal and we have never seen a problem in the past.” An expert on this issue accused critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “when companies begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were met with scepticism.

That prediction has come to pass. In the current period, energy and extraction companies have filed a historic level of claims against nations both wealthy and developing, contesting – similar to the UK mine – state efforts to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained $84bn. That represents the combined GDP