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What is your reckon our political system functions? It could be similar to this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills become law. Legislation is upheld by the courts. Simple as that. However, that’s how it used to work. Those days are over.

The Emergence of Shadow Courts

Today, overseas companies, along with the wealthy individuals behind them, can sue nation states for the laws they pass, at secret arbitration panels staffed by business advocates. These proceedings take place behind closed doors. Unlike our courts, these panels allow no right of appeal or legal review. The general public cannot take a case to them, just as our government, including enterprises based in this country. They are open exclusively to businesses based overseas.

If a tribunal finds that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, even billions.

These awards are based not on real financial harm but compensation the panel members decide the company might otherwise have made. The administration could be forced to drop the legislation. It is deterred from passing future laws of a similar nature, worried about facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as firms observe each other, and investment funds finance suits in return for a cut of the takings. The consequence? National sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the choices enacted by legislatures is that this stipulation has been written – without democratic mandate, and frequently under a climate of profound opacity – within bilateral investment treaties.

A Real-World Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The justice found that proposals to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine could have no consequence on climate commitments. The Labour government then withdrew the permission the previous administration had issued. Today, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the companies petitioning it.

In August, a firm whose final controllers are located in the offshore financial centre lodged a claim challenging the UK government. The previous week a dispute settlement body in Washington DC was established to adjudicate on it.

The claimant is litigating against the UK for the money it might have made if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Who is representing it in opposition to the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government enacts a policy, the high court validates it, then a foreign company challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

On the same day that the panel on the coalmine case was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he may employ the arbitration process to contest the restrictions the UK enacted against him following the invasion of Ukraine. He has already filed a claim against another European state for this reason, claiming sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the lawyers on his side? the wife of a former prime minister, wife of the ex-UK leader.

Legal experts argue that the EU’s procrastination in utilising seized state funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over sovereign states might be preventing the funds Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that such things could not occur. In 2014, a former prime minister, advocating for the largest and riskiest of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this issue labelled critics of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Warnings that “once firms grasp the power they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were met with widespread derision.

That prediction is now a reality. This year, energy and resource corporations have initiated a record number of suits against nations rich and poor, contesting – as in the case of the Whitehaven project – official measures to stop global warming. Firms have so far won $114bn through ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP