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What is your reckon our political system functions? Maybe something like this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. That's it. Yet, that was how it once functioned. Not anymore.

The Advent of Shadow Tribunals

Nowadays, foreign corporations, or the billionaires behind them, are able to litigate against nation states for the policies they pass, at offshore tribunals composed of commercial attorneys. These proceedings are held behind closed doors. In contrast to domestic courts, these tribunals provide no right of appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even companies headquartered in this country. Access is granted solely for businesses registered abroad.

When a secret court determines that a legislative action could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These sums represent not tangible damages but money the arbitrators determine the company might otherwise have made. The administration might be compelled to abandon its policy. It becomes hesitant to passing future laws in that area, for fear of being sued.

A Process Growing Exponentially

Record numbers of legal actions are being brought, as firms observe each other, and hedge funds finance suits in return for a share of the settlements. The result? Democratic sovereignty and democracy are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the rulings enacted by elected bodies is that this stipulation has been incorporated – without democratic mandate, and often in conditions of total confidentiality – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The justice ruled that proposals to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The Labour government subsequently revoked the permission the former government had issued. Currently, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the entities filing the suit.

Last August, a company whose ultimate owners are based in the tax haven filed a lawsuit versus the UK government. Last week a dispute settlement body in the US capital was convened to hear it.

The company is suing the UK for the profits it could have earned if the mine had received permission to commence operations. Citizens have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the state? A sitting MP, and former attorney-general in the previous government, the noted patriot the MP. The administration passes a law, the national judiciary supports it, then a foreign company disputes it through an undemocratic offshore tribunal, and a elected official represents its behalf.

The Russian Case

Simultaneously that the panel on the coalmine case was convened, it was revealed 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’ll use the arbitration process to fight the penalties the UK imposed on him after the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, demanding $16bn: equivalent to half of state's yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as guarantee for its financial support package stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments could be blocking the funds Ukraine critically depends on.

Misleading Claims and Escalating Risks

Politicians promised that such things could not occur. Previously, a government leader, championing the biggest and most dangerous of all these agreements, stated: “We’ve signed investment treaty upon trade deal and there has never been a case in the past.” An adviser on this matter described activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Warnings that “when companies begin to understand the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were met with widespread derision.

That prediction has come to pass. This year, fossil fuel and extraction companies have filed a historic level of cases against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – state efforts to prevent climate breakdown. Corporations have thus far won $114bn via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP