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How do you understand our political system functions? It could be similar to this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. The law is maintained by the courts. Simple as that. However, that’s how it once functioned. No longer.

The Emergence of Shadow Courts

Today, overseas companies, or the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at offshore tribunals made up of corporate lawyers. The cases are conducted in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, including companies operating from this country. Access is granted solely for entities operating from foreign soil.

If a tribunal rules that a legislative action may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions, potentially billions.

These awards represent not real financial harm but compensation the tribunal officials conclude the company might otherwise have made. The state may have to rescind the measure. It is hesitant to enacting future policies along the same lines, worried about facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the awards. The result? Democratic sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the decisions enacted by elected bodies is that this stipulation has been inserted – without public consent, and often in a climate of profound opacity – inside trade treaties.

A Concrete Instance: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the senior court. The judge found that proposals to dig the first major coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine could have no consequence on our carbon budgets. The Labour government later cancelled the consent the previous administration had issued. Currently, this legal outcome faces being overturned by an offshore tribunal accountable to exclusively the entities petitioning it.

In August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings versus the UK government. Recently a tribunal in the US capital was established to consider the case.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. The public has little idea how much this sum represents. Which individual is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The state makes a decision, the domestic court validates it, then a international entity disputes it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Case

On the same day that the panel on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it appears probable that he will utilise the ISDS mechanism to challenge the restrictions the UK enacted against him following the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, claiming sixteen billion dollars: half that nation's yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, married to the previous PM.

International law scholars argue that the EU’s procrastination in using frozen Russian assets as security for its financial support package stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over elected governments may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Mounting Threats

We were assured that these events could not occur. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” An adviser on this matter accused campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about these lawsuits. Predictions that “as corporations start to realise the power they now possess, they will turn their attention from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction has come to pass. In the current period, oil and gas and mining firms have filed a historic level of suits against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to stop global warming. Firms have thus far won $114bn by using ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP