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Can you reckon our political system works? It could be along the lines of this. We elect MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Advent of Shadow Courts

Nowadays, foreign corporations, or the oligarchs behind them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals staffed by commercial attorneys. The cases take place away from public scrutiny. In contrast to domestic courts, these panels allow no avenue for appeal or legal review. The general public cannot take a case to them, just as our government, or even enterprises operating from this country. The door is open solely for corporations operating from foreign soil.

When a secret court finds that a law or policy might diminish the corporation’s anticipated profits, it can award compensation of vast sums, potentially billions.

These awards represent not actual losses but funds the tribunal officials conclude the company could potentially have made. The government may have to rescind the measure. It will be deterred from enacting future policies in that area, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The result? Sovereignty and democratic governance are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the choices made by legislatures is that this clause has been incorporated – without public consent, and often in a climate of profound opacity – inside bilateral investment treaties.

A Real-World Instance: The Cumbrian Coal Mine

Last year, a conservation group achieved a major legal triumph at the senior court. The judge found that proposals to dig the first deep coalmine in the UK for a generation, in northwest England, were wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had zero effect on national carbon targets. The new government then withdrew the licence the previous administration had approved. Today, this success is under threat by an foreign court reporting to only the corporations filing the suit.

Last August, a firm whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in the United States was set up to consider the case.

The company is suing the UK for the money it could have earned if the mine had been permitted to commence operations. Citizens have no clear indication how much this could amount to. Which individual is representing it against the UK administration? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a foreign company challenges it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he’ll use the tribunal to challenge the restrictions the UK levied against him following the war in Ukraine. He has filed a claim against a small nation for this reason, seeking a colossal sum: an amount representing half state's yearly budget. Part of the lawyers on his side? the wife of a former prime minister, wife of the former British prime minister.

Legal experts contend that the EU’s procrastination in using frozen Russian assets 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 investment pact. This extraordinary, unaccountable authority over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Mounting Threats

The public was told that these events could not occur. Previously, a senior politician, promoting the most significant and hazardous of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” A consultant on this topic accused critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “once firms begin to understand the power they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were met with scepticism.

That prediction is now a reality. Recently, energy and resource corporations have initiated a record number of suits against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to halt global warming. Firms have thus far won $114bn via ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP