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Can you reckon our political system works? It could be along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills become law. The law is maintained by the courts. Simple as that. However, that was how it operated in the past. No longer.

The Advent of Shadow Courts

In the modern era, overseas companies, or the wealthy individuals behind them, are able to litigate against governments for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are conducted in secret. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, nor can our government, or even companies operating from this country. Access is granted solely for entities based overseas.

When a secret court finds that a legislative action might diminish the corporation’s anticipated profits, it can award compensation of vast sums, even billions.

This compensation represent not actual losses but money the tribunal officials determine the company might otherwise have made. The administration might be compelled to abandon its policy. It becomes deterred from enacting future policies of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Historically high figures of disputes are being brought, as firms take cues from each other, and private equity finance suits in return for a cut of the settlements. The consequence? National sovereignty and democracy are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the decisions taken by elected bodies is that this provision has been inserted – without democratic mandate, and frequently under a climate of extreme secrecy – within trade treaties.

A Real-World Example: The UK Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for 30 years, in northwest England, had been unlawfully approved by the previous government, which had accepted the bizarre claim that the mine would have no consequence on our carbon budgets. The Labour government then withdrew the consent the Tories had granted. Now, this success faces being overturned by an secret arbitration panel answering to no one but the corporations bringing the case.

During August, a corporate entity whose final controllers reside in the offshore financial centre filed a lawsuit against the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to go ahead. The public has no clear indication how much this could amount to. Which individual is representing it in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The administration makes a decision, the high court validates it, then a foreign company challenges it through an undemocratic offshore tribunal, and a elected official works for its behalf.

A Sanctions Case

On the same day that the tribunal on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know little of the case so far, but it is highly possible that he will utilise the tribunal to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing a small nation for this reason, claiming sixteen billion dollars: an amount representing half government’s yearly budget. Among the lawyers on his side? the wife of a former prime minister, wife of the previous PM.

Trade specialists argue that the EU’s hesitation in utilising seized Russian assets as collateral for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Mounting Costs

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, championing the most significant and hazardous of all these agreements, declared: “The UK has signed trade agreement after trade deal and there has never been a issue in the past.” An adviser on this matter accused activists of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “as corporations grasp the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That warning is now a reality. Recently, oil and gas and extraction companies have filed a historic level of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – government attempts to stop global warming. Companies have so far won $114bn via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP