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Can you perceive our system of government functions? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Rise of Shadow Courts

Today, overseas companies, along with the oligarchs behind them, can sue nation states for the laws they pass, at secret arbitration panels composed of corporate lawyers. The cases are held away from public scrutiny. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even enterprises based in this country. The door is open exclusively to businesses based overseas.

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

These awards represent not real financial harm but compensation the arbitrators decide the company would perhaps have made. The administration may have to abandon its policy. It will be hesitant to passing future laws in that area, for fear of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of legal actions are being brought, as corporations learn from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The consequence? Sovereignty and democratic governance are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the rulings made by parliaments is that this clause has been inserted – without democratic mandate, and often in conditions of total confidentiality – within trade treaties.

A Real-World Case: The UK Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The judge ruled that schemes to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration subsequently revoked the permission the previous administration had granted. Today, this success is under threat by an offshore tribunal accountable to exclusively the companies petitioning it.

Last August, a company whose ultimate owners are located in the offshore financial centre filed a lawsuit versus the UK government. Last week a arbitration panel in Washington DC was convened to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. What legal team is representing it challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The government passes a law, the high court upholds it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

On the same day that the court on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to fight the penalties the UK enacted against him after the Russian aggression. He has already filed a claim against a small nation on these grounds, seeking $16bn: equivalent to half of state's yearly budget. Part of the counsel representing him there? a prominent lawyer, wife of the former British prime minister.

International law scholars argue that the EU’s delay in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Threats

We were assured that such things could not occur. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this topic accused campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that solely developing countries needed to fear such legal actions. Warnings that “as corporations grasp the influence they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction is now a reality. This year, oil and gas and extraction companies have filed a unprecedented number of suits against nations rich and poor, challenging – like the example of the UK mine – government attempts to prevent global warming. Companies have to date won $114bn via ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP