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How do you perceive our political system works? Maybe along the lines of this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills become law. The law is maintained by the courts. End of story. Yet, that’s how it operated in the past. No longer.

The Rise of Shadow Courts

In the modern era, foreign corporations, or the oligarchs behind them, are able to litigate against governments for the regulations they pass, at private courts made up of corporate lawyers. Such disputes are held away from public scrutiny. Unlike our courts, these bodies provide no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, or even companies headquartered in this country. They are open exclusively to corporations registered abroad.

If a tribunal finds that a law or policy may compromise the corporation’s projected profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums represent not actual losses but money the arbitrators determine the company would perhaps have made. The government could be forced to drop the legislation. It will be hesitant to introducing similar legislation along the same lines, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being brought, as companies take cues from each other, and private equity finance suits in return for a cut of the takings. The consequence? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the rulings enacted by elected bodies is that this stipulation has been written – without democratic mandate, and often in an atmosphere of extreme secrecy – into international trade agreements.

A Specific Case: The UK Coalmine

A year ago, activists won a great victory at the High Court. The justice ruled that proposals to excavate the first deep coalmine in the UK for a generation, in northwest England, were unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The new government then withdrew the licence the Tories had granted. Currently, this legal outcome could be compromised by an secret arbitration panel accountable to no one but the entities petitioning it.

In August, a company whose final controllers are located in the tax haven lodged a claim challenging the UK government. Recently a tribunal in Washington DC was established to consider the case.

This firm is suing the UK for the profits it would have generated if the mine had been allowed to go ahead. The public has little idea how much this could amount to. Who is acting on its behalf against the British government? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The government enacts a policy, the national judiciary supports it, then a foreign company contests it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coalmine case was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it appears probable that he will utilise the tribunal to fight the penalties the UK enacted against him after the invasion of Ukraine. He has previously started suing another European state on these grounds, claiming a colossal sum: half that state's yearly income. Included in the lawyers representing him there? Cherie Blair, married to the former British prime minister.

International law scholars believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its financial support package is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over sovereign states might be preventing the finance Ukraine desperately needs.

Empty Promises and Growing Risks

Politicians promised that these scenarios were not possible. Years ago, a former prime minister, promoting the most significant and hazardous of all these agreements, stated: “Britain has agreed to investment treaty upon trade deal and there has not been a issue in the past.” An adviser on this matter described activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that solely developing countries had to worry about such legal actions. Predictions that “as corporations begin to understand the authority they now possess, they will redirect their efforts from the poorer states to the developed economies” were met with widespread derision.

That warning has now materialised. This year, energy and mining firms have filed a record number of claims against nations both wealthy and developing, opposing – similar to the UK mine – official measures to prevent global warming. Companies have thus far won $114bn through ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP