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What is your perceive our political system operates? It could be similar to this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills become law. The law is upheld by the courts. End of story. However, that used to be how it once functioned. No longer.

The Rise of Shadow Courts

Nowadays, international firms, or the billionaires who own them, are able to litigate against elected administrations for the laws they pass, at private courts made up of business advocates. The cases are held behind closed doors. Differing from national judiciaries, these panels grant no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even businesses operating from this country. The door is open solely for businesses based overseas.

When a secret court rules that a law or policy could harm the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These awards constitute not real financial harm but money the arbitrators decide the company would perhaps have made. The government might be compelled to abandon its policy. It is hesitant to passing future laws of a similar nature, for fear of facing litigation.

A System Growing Exponentially

Historically high figures of legal actions are being brought, as firms take cues from each other, and hedge funds finance suits in return for a portion of the takings. The consequence? National sovereignty and democracy are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions taken by legislatures is that this stipulation has been inserted – absent public approval, and typically amid conditions of extreme secrecy – inside trade treaties.

A Real-World Example: The UK Coal Mine

Last year, a conservation group secured a significant win at the high court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have had no consequence on our carbon budgets. The incoming administration then withdrew the consent the former government had issued. Now, this legal outcome could be compromised by an offshore tribunal accountable to no one but the companies petitioning it.

In August, a company whose final controllers are based in the Cayman Islands lodged a claim challenging the UK government. Last week a arbitration panel in the United States was set up to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. Citizens have no clear indication how much this sum represents. Which individual is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The government enacts a policy, the high court supports it, then a international entity challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

The Russian Challenge

Simultaneously that the court on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case at present, but it seems likely that he will utilise the arbitration process to fight the penalties the UK enacted against him after the war in Ukraine. He has already filed a claim against a small nation on these grounds, demanding a colossal sum: equivalent to half of nation's annual revenue. Among the counsel on his side? a prominent lawyer, wife of the former British prime minister.

Legal experts argue that the EU’s hesitation in utilising seized state funds as collateral for its financial support package is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that such things were not possible. Previously, a government leader, championing the largest and riskiest of all these agreements, stated: “Britain has agreed to trade deal after trade deal and there has not been a issue in the past.” An adviser on this issue described campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies begin to understand the authority bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were met with scepticism.

That warning has now materialised. In the current period, fossil fuel and resource corporations have lodged a unprecedented number of suits against nations rich and poor, opposing – like the example of the Whitehaven project – official measures to prevent climate breakdown. Companies have thus far won $114bn by using ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP