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What is your reckon our political system operates? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Rise of Shadow Courts

In the modern era, overseas companies, along with the oligarchs who own them, have the power to sue governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. The cases are held in secret. In contrast to domestic courts, these tribunals grant no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises operating from this country. Access is granted exclusively to corporations operating from foreign soil.

If a tribunal determines that a government measure might diminish the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions, potentially billions.

These awards represent not actual losses but funds the tribunal officials decide the company might otherwise have made. The government may have to drop the legislation. It becomes discouraged from introducing similar legislation along the same lines, due to the risk of being sued.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as firms take cues from each other, and hedge funds finance suits in return for a portion of the settlements. The consequence? Democratic sovereignty and democratic governance are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump a country's own laws and the choices enacted by legislatures is that this clause has been incorporated – absent public approval, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Concrete Example: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The justice found that proposals to excavate the first deep coalmine in the UK for 30 years, in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The Labour government then withdrew the consent the former government had granted. Today, this victory is under threat by an offshore tribunal accountable to exclusively the entities bringing the case.

In August, a corporate entity whose beneficial owners reside in the tax haven filed a lawsuit versus the UK government. Recently a tribunal in Washington DC was set up to hear it.

This firm is suing the UK for the revenue it would have generated if the mine had received permission to proceed. The public has little idea how much this sum represents. What legal team is representing it in opposition to the British government? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a international entity disputes it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case so far, but it seems likely that he may employ the tribunal to contest the restrictions the UK levied against him after the war in Ukraine. He has already started suing Luxembourg with similar intent, demanding sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the legal team representing him there? a prominent lawyer, wife of the previous PM.

Trade specialists contend that the EU’s delay in using frozen state funds as security for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over sovereign states might be preventing the money Ukraine critically depends on.

False Assurances and Mounting Risks

Politicians promised that such things could not occur. Previously, a former prime minister, championing the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this issue labelled campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about these lawsuits. Warnings that “once firms begin to understand the power they now possess, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat has come to pass. In the current period, energy and extraction companies have filed a historic level of cases against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – government attempts to prevent global warming. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured $84bn. That is equivalent to the combined GDP