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Can you understand our system of government operates? Maybe something like this. We elect MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. The law are enforced by the courts. Simple as that. However, that used to be how it once functioned. Those days are over.

The Rise of Shadow Courts

Nowadays, foreign corporations, or the wealthy individuals behind them, are able to litigate against governments for the policies they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are held behind closed doors. Differing from national judiciaries, these bodies provide no right of appeal or legal review. You or I are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. Access is granted solely for businesses operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

This compensation constitute not real financial harm but funds the panel members conclude the company might otherwise have made. The administration may have to rescind the measure. It is discouraged from passing future laws along the same lines, worried about being sued.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as companies take cues from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The outcome? Democratic sovereignty and popular rule are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the choices enacted by parliaments is that this provision has been inserted – without democratic mandate, and typically amid an atmosphere of extreme secrecy – within trade treaties.

A Specific Example: The UK Coal Mine

Last year, a conservation group won a great victory at the High Court. The justice ruled that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine could have no impact on national carbon targets. The new government subsequently revoked the licence the former government had granted. Now, this victory could be compromised by an offshore tribunal accountable to exclusively the companies filing the suit.

In August, a corporate entity whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a dispute settlement body in the United States was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been allowed to commence operations. Citizens have no idea how much this might be. What legal team is serving as its counsel 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 state passes a law, the domestic court upholds it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case so far, but it seems likely that he’ll use the arbitration process to contest the penalties the UK levied against him following the war in Ukraine. He has initiated proceedings against another European state with similar intent, seeking $16bn: an amount representing half state's yearly income. Included in the counsel acting for him in that case? Cherie Blair, married to the former British prime minister.

International law scholars contend that the EU’s procrastination in using frozen oligarchs' funds as collateral for its financial support package is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the money Ukraine desperately needs.

Misleading Claims and Growing Risks

Politicians promised that these scenarios could not occur. Years ago, a government leader, championing the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade deal after trade deal and there has never been a case in the past.” An adviser on this topic described critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries needed to fear such legal actions. Warnings that “when companies grasp the power they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by scepticism.

That threat has now materialised. This year, energy and extraction companies have filed a record number of suits against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – official measures to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP