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Can you perceive our democratic process works? It could be something like this. We elect MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Yet, that’s how it used to work. Those days are over.

The Rise of Shadow Courts

Nowadays, overseas companies, or the oligarchs behind them, can sue nation states for the laws they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or legal review. Ordinary citizens are unable to file a case to them, nor can our government, or even companies operating from this country. The door is open solely for entities registered abroad.

If a tribunal determines that a legislative action might diminish the corporation’s anticipated profits, it can award financial penalties of vast sums, even billions.

This compensation are based not on tangible damages but money the panel members decide the company would perhaps have made. The administration may have to rescind the measure. It becomes discouraged from passing future laws in that area, worried about facing litigation.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations take cues from each other, and hedge funds fund legal actions in return for a share of the takings. The consequence? Democratic sovereignty and popular rule are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the choices taken by parliaments is that this provision has been incorporated – without democratic mandate, and typically amid an atmosphere of extreme secrecy – within trade treaties.

A Concrete Instance: The Whitehaven Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the senior court. The justice ruled that proposals to excavate the first new deep coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine would have had no consequence on our carbon budgets. The new government later cancelled the permission the former government had granted. Today, this legal outcome could be compromised by an offshore tribunal answering to only the companies filing the suit.

In August, a company whose beneficial owners are located in the tax haven filed a lawsuit against the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

The claimant is litigating against the UK for the money it would have generated if the mine had been permitted to go ahead. We have no idea how much this could amount to. What legal team is acting on its behalf in opposition to the state? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court supports it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official acts on its behalf.

A Sanctions Case

Concurrently that the court on the mining lawsuit was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case at present, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has initiated proceedings against Luxembourg for this reason, seeking a colossal sum: half that government’s annual revenue. Included in the legal team acting for him in that case? Cherie Blair, wife of the previous PM.

Legal experts contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states might be preventing the money Ukraine critically depends on.

Misleading Claims and Growing Risks

Politicians promised that these scenarios wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all these agreements, told us: “We’ve signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this issue labelled activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries had to worry about ISDS claims. Warnings that “as corporations grasp the power they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were met with general mockery.

That warning has come to pass. In the current period, fossil fuel and extraction companies have filed a historic level of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – official measures to stop environmental catastrophe. Firms have thus far won vast sums via ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP