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Can you reckon our system of government functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. End of story. Yet, that was how it once functioned. No longer.

The Rise of Shadow Courts

Nowadays, international firms, along with the billionaires who own them, have the power to sue nation states for the regulations they pass, at private courts staffed by business advocates. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals grant no avenue for appeal or legal review. You or I are barred from bringing a case to them, nor can our government, including businesses based in this country. They are open only to corporations registered abroad.

When a secret court determines that a law or policy could harm the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

This compensation represent not tangible damages but funds the arbitrators conclude the company could potentially have made. The government could be forced to drop the legislation. It is discouraged from introducing similar legislation along the same lines, for fear of being sued.

A Mechanism Running Rampant

Unprecedented levels of disputes are being filed, as companies take cues from each other, and hedge funds fund legal actions in exchange for a cut of the awards. The result? Democratic sovereignty and popular rule are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the rulings made by elected bodies is that this clause has been inserted – without public consent, and often in a climate of extreme secrecy – inside bilateral investment treaties.

A Specific Instance: The UK Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The presiding officer ruled that proposals to excavate the first deep coalmine in the UK for three decades, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The Labour government later cancelled the licence the former government had issued. Currently, this victory could be compromised by an foreign court reporting to exclusively the companies bringing the case.

During August, a corporate entity whose beneficial owners are located in the tax haven initiated proceedings challenging the UK government. Recently a tribunal in the US capital was set up to adjudicate on it.

This firm is litigating against the UK for the money it could have earned if the mine had been permitted to commence operations. We have little idea how much this might be. Which individual is serving as its counsel against the UK administration? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the high court validates it, then a foreign company contests it through an undemocratic arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case to date, but it appears probable that he’ll use the arbitration process to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation with similar intent, claiming $16bn: an amount representing half nation's yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Legal experts believe that the EU’s hesitation in using frozen oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over democratic administrations could be blocking the funds Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, told us: “Britain has agreed to investment treaty upon trade deal and there has not been a case in the past.” An expert on this matter accused critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations should be concerned by ISDS claims. Predictions that “once firms grasp the authority bestowed upon them, they will shift their focus from the weak nations to the developed economies” were greeted by widespread derision.

That prediction is now a reality. In the current period, energy and mining firms have lodged a historic level of claims against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to stop climate breakdown. Firms have so far won vast sums through ISDS, of which oil majors have obtained the majority. That equates to the combined GDP