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How do you reckon our democratic process works? It could be similar to this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. That's it. Well, that used to be how it once functioned. No longer.

The Rise of Shadow Courts

Today, overseas companies, and the oligarchs who own them, are able to litigate against nation states for the policies they pass, at private courts composed of business advocates. These proceedings are held in secret. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. The general public cannot take a case to them, and neither can our government, including enterprises operating from this country. Access is granted only to corporations operating from foreign soil.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, even billions.

These awards represent not actual losses but compensation the panel members determine the company would perhaps have made. The administration may have to drop the legislation. It will be hesitant to passing future laws along the same lines, for fear of being sued.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being filed, as companies learn from each other, and hedge funds bankroll lawsuits in return for a share of the takings. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the decisions made by elected bodies is that this clause has been written – absent public approval, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Specific Example: The UK Coal Mine

A year ago, activists secured a significant win at the high court. The justice determined that schemes to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine could have no consequence on our carbon budgets. The incoming administration subsequently revoked the licence the former government had granted. Today, this success could be compromised by an secret arbitration panel accountable to only the corporations filing the suit.

During August, a company whose final controllers are located in the Cayman Islands initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC was set up to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to go ahead. We have little idea how much this might be. Which individual is serving as its counsel challenging the state? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The administration enacts a policy, the domestic court validates it, then a overseas corporation contests it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he may employ the arbitration process to fight the sanctions the UK enacted against him following the Russian aggression. He has already filed a claim against Luxembourg on these grounds, demanding sixteen billion dollars: half that government’s annual revenue. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in using frozen oligarchs' funds as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over sovereign states might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that such things wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all investment pacts, declared: “We’ve signed trade deal after trade deal and there has never been a case in the past.” A consultant on this matter described activists of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear these lawsuits. Predictions that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. Recently, fossil fuel and mining firms have filed a record number of suits against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – state efforts to stop environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained eighty-four billion dollars. That represents the combined GDP