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What is your understand our political system functions? Maybe similar to this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills become law. Statutes is maintained by the courts. That's it. Well, that’s how it operated in the past. Not anymore.

The Advent of Shadow Courts

Today, foreign corporations, and the wealthy individuals who own them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels composed of commercial attorneys. The cases take place away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or legal review. You or I are barred from bringing a case to them, nor can our government, including businesses operating from this country. The door is open solely for entities registered abroad.

If a tribunal rules that a legislative action may compromise the corporation’s projected profits, it can award compensation of hundreds of millions, running into billions.

These awards represent not actual losses but compensation the arbitrators decide the company might otherwise have made. The state could be forced to drop the legislation. It will be discouraged from passing future laws along the same lines, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being brought, as firms learn from each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The consequence? Sovereignty and democratic governance are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the decisions enacted by parliaments is that this stipulation has been inserted – absent public approval, and frequently under a climate of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The UK Coal Mine

Last year, a conservation group secured a significant win at the High Court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have had zero effect on national carbon targets. The incoming administration subsequently revoked the permission the previous administration had approved. Today, this legal outcome could be compromised by an offshore tribunal accountable to only the entities bringing the case.

In August, a corporate entity whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

The company is suing the UK for the profits it could have earned if the mine had been allowed to go ahead. We have no clear indication how much this could amount to. What legal team is serving as its counsel in opposition to the state? An elected representative, and former attorney-general in the Conservative government, the noted patriot the MP. The government passes a law, the domestic court supports it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official represents its behalf.

An Oligarch's Case

Simultaneously that the court on the coal mine dispute was appointed, we learned from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case so far, but it seems likely that he’ll use the ISDS mechanism to challenge the restrictions the UK enacted against him following the Russian aggression. He has already initiated proceedings against another European state for this reason, seeking $16bn: half that state's yearly budget. Among the counsel on his side? Cherie Blair, wife of the ex-UK leader.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states might be preventing the money Ukraine desperately needs.

False Assurances and Mounting Costs

Politicians promised that these scenarios were not possible. In 2014, a government leader, championing the most significant and hazardous of all investment pacts, told us: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this issue labelled campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “as corporations start to realise the authority they’ve been granted, they will shift their focus from the weak nations to the developed economies” were dismissed with general mockery.

That prediction has come to pass. In the current period, fossil fuel and resource corporations have initiated a record number of cases against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have so far won $114bn by using ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP