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How do you perceive our political system operates? Perhaps similar to this. We elect MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. End of story. Well, that was how it used to work. Those days are over.

The Emergence of Shadow Courts

Today, international firms, or the wealthy individuals who own them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels staffed by business advocates. The cases take place behind closed doors. In contrast to domestic courts, these bodies allow no right of appeal or legal review. The general public are unable to file a case to them, nor can our government, or even enterprises operating from this country. They are open only to entities registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These sums are based not on real financial harm but money the tribunal officials decide the company could potentially have made. The administration might be compelled to rescind the measure. It becomes discouraged from passing future laws along the same lines, worried about facing litigation.

A System Spiralling Out of Control

Historically high figures of cases are being initiated, as firms observe each other, and hedge funds bankroll lawsuits in return for a share of the awards. The consequence? Democratic sovereignty and popular rule are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the choices enacted by legislatures is that this clause has been written – absent public approval, and frequently under an atmosphere of profound opacity – inside bilateral investment treaties.

A Concrete Example: The UK Coalmine

Twelve months ago, activists won a great victory at the high court. The justice determined that schemes to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration later cancelled the consent the Tories had issued. Currently, this success faces being overturned by an offshore tribunal answering to no one but the entities petitioning it.

During August, a corporate entity whose ultimate owners are located in the Cayman Islands filed a lawsuit against the UK government. Last week a arbitration panel in the US capital was established to consider the case.

The company is suing the UK for the money it could have earned if the mine had been permitted to proceed. The public has no idea how much this sum represents. Which individual is acting on its behalf against the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The government enacts a policy, the domestic court validates it, then a overseas corporation disputes it through an secretive offshore tribunal, and a elected official works for its behalf.

A Sanctions Challenge

On the same day that the panel on the coalmine case was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know little of the case at present, but it seems likely that he may employ the arbitration process to contest the sanctions the UK imposed on him subsequent to the Russian aggression. He has started suing a small nation on these grounds, seeking $16bn: equivalent to half of nation's yearly budget. Included in the counsel representing him there? a prominent lawyer, wife of the previous PM.

Trade specialists contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Empty Promises and Growing Risks

The public was told that such things could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this issue accused campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms grasp the influence they now possess, they will shift their focus from the weak nations to the wealthy nations” were greeted by general mockery.

That prediction has now materialised. In the current period, energy and resource corporations have filed a record number of claims against nations rich and poor, contesting – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP