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What is your reckon our political system operates? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. The law is maintained by the courts. That's it. Yet, that’s how it operated in the past. Not anymore.

The Rise of Shadow Courts

Nowadays, overseas companies, along with the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at private courts staffed by corporate lawyers. The cases take place away from public scrutiny. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even companies based in this country. Access is granted only to businesses registered abroad.

When a secret court finds that a law or policy may compromise the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, even billions.

These awards are based not on actual losses but compensation the tribunal officials decide the company could potentially have made. The state might be compelled to abandon its policy. It is deterred from enacting future policies of a similar nature, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of cases are being filed, as firms take cues from each other, and hedge funds fund legal actions in exchange for a share of the awards. The consequence? Democratic sovereignty and popular rule are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the rulings made by legislatures is that this provision has been written – without public consent, and frequently under an atmosphere of extreme secrecy – into international trade agreements.

A Real-World Case: The UK Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The justice determined that schemes to dig the first new deep coal mine in the UK for a generation, in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to 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 approved. Now, this legal outcome faces being overturned by an foreign court accountable to no one but the entities bringing the case.

During August, a firm whose final controllers are based in the Cayman Islands lodged a claim against the UK government. Last week a arbitration panel in the United States was set up to hear it.

The claimant is suing the UK for the profits it could have earned if the mine had received permission to go ahead. The public has little idea how much this might be. What legal team is acting on its behalf in opposition to the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The state makes a decision, the domestic court supports it, then a foreign company disputes it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case so far, but it is highly possible that he may employ the ISDS mechanism to contest the penalties the UK imposed on him after the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, demanding a colossal sum: an amount representing half state's yearly budget. Among the lawyers representing him there? a prominent lawyer, spouse of the previous PM.

Trade specialists argue that the EU’s hesitation in using frozen state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over democratic administrations could be blocking the funds Ukraine desperately needs.

False Assurances and Escalating Threats

The public was told that these scenarios could not occur. In 2014, a former prime minister, promoting the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and there has not been a issue in the past.” A consultant on this matter labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states had to worry about ISDS claims. Predictions that “when companies begin to understand the power bestowed upon them, they will turn their attention from the poorer states to the strong ones” were met with widespread derision.

That prediction has come to pass. Recently, energy and extraction companies have filed a record number of claims against nations rich and poor, contesting – like the example of the Cumbrian coalmine – state efforts to prevent global warming. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP