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How do you understand our political system operates? Maybe similar to this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that used to be how it used to work. No longer.

The Advent of Shadow Courts

Today, international firms, and the oligarchs that control them, have the power to sue elected administrations for the regulations they pass, at private courts staffed by business advocates. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies grant no avenue for appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, including companies headquartered in this country. The door is open exclusively to corporations registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s expected profits, it may order compensation of hundreds of millions, potentially billions.

These sums constitute not actual losses but funds the panel members decide the company would perhaps have made. The state could be forced to drop the legislation. It will be discouraged from enacting future policies of a similar nature, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being filed, as companies learn from each other, and private equity finance suits in return for a share of the takings. The consequence? National sovereignty and democracy are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the choices taken by elected bodies is that this clause has been incorporated – without public consent, and often in a climate of total confidentiality – within international trade agreements.

A Specific Case: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The justice found that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the previous government, which had agreed to the questionable argument that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the consent the previous administration had granted. Now, this legal outcome faces being overturned by an secret arbitration panel reporting to only the entities bringing the case.

In August, a corporate entity whose final controllers are based in the tax haven filed a lawsuit challenging the UK government. Recently a dispute settlement body in the United States was established to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. We have no clear indication how much this could amount to. What legal team is serving as its counsel against the UK administration? A sitting MP, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the high court supports it, then a overseas corporation challenges it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

On the same day that the tribunal on the coalmine case was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case at present, but it appears probable that he’ll use the tribunal to contest the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has already initiated proceedings against Luxembourg on these grounds, seeking $16bn: equivalent to half of state's yearly income. Included in the lawyers on his side? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists argue that the EU’s delay in leveraging immobilised state funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states may be obstructing the money Ukraine critically depends on.

Empty Promises and Growing Threats

Politicians promised that these events wouldn’t happen. In 2014, a government leader, advocating for the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty upon trade deal and we have never seen a problem in the past.” An expert on this issue accused critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries should be concerned by such legal actions. Predictions that “when companies begin to understand the influence bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. This year, fossil fuel and extraction companies have lodged a unprecedented number of cases against nations rich and poor, contesting – similar to the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Firms have to date won vast sums by using ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP