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Can you reckon our political system functions? Maybe similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Statutes are enforced by the courts. Simple as that. Well, that used to be how it once functioned. No longer.

The Rise of Shadow Courts

In the modern era, overseas companies, or the billionaires behind them, can sue nation states for the laws they pass, at private courts made up of business advocates. Such disputes take place behind closed doors. Differing from national judiciaries, these bodies provide no right of appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even enterprises headquartered in this country. The door is open only to businesses operating from foreign soil.

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

These sums are based not on tangible damages but compensation the arbitrators decide the company would perhaps have made. The state could be forced to abandon its policy. It becomes discouraged from introducing similar legislation in that area, for fear of facing litigation.

A Mechanism Running Rampant

Historically high figures of disputes are being brought, as firms learn from each other, and private equity bankroll lawsuits for a share of a share of the awards. The outcome? Democratic sovereignty and democratic governance are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the decisions made by legislatures is that this provision has been incorporated – absent public approval, and often in a climate of profound opacity – inside international trade agreements.

A Specific Instance: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the senior court. The judge ruled that proposals to open the first new deep coal mine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have no impact on climate commitments. The Labour government later cancelled the consent the previous administration had issued. Currently, this victory could be compromised by an foreign court answering to exclusively the companies bringing the case.

Last August, a firm whose ultimate owners are based in the tax haven filed a lawsuit against the UK government. Recently a arbitration panel in the US capital was established to hear it.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. Which individual is representing it against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary supports it, then a overseas corporation contests it through an unaccountable private court, and a elected official acts on its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case to date, but it appears probable that he’ll use the arbitration process to fight the restrictions the UK imposed on him subsequent to the Russian aggression. He has already started suing Luxembourg on these grounds, demanding $16bn: equivalent to half of government’s annual revenue. Among the lawyers on his side? Cherie Blair, wife of the former British prime minister.

Legal experts argue that the EU’s hesitation in using frozen Russian assets as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations could be blocking the money Ukraine critically depends on.

Misleading Claims and Mounting Threats

Politicians promised that these scenarios were not possible. Previously, a government leader, advocating for the most significant and hazardous of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” An expert on this matter accused campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “as corporations begin to understand the power they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with widespread derision.

That prediction has now materialised. Recently, energy and resource corporations have lodged a historic level of claims against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to stop global warming. Corporations have thus far won vast sums by using ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP