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Can you perceive our democratic process operates? It could be something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Emergence of Shadow Courts

Today, foreign corporations, or the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at offshore tribunals composed of business advocates. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies provide no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, including companies operating from this country. They are open solely for corporations registered abroad.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it may order compensation of hundreds of millions, running into billions.

This compensation represent not tangible damages but compensation the panel members conclude the company might otherwise have made. The state may have to abandon its policy. It will be discouraged from introducing similar legislation in that area, for fear of being sued.

A System Running Rampant

Unprecedented levels of cases are being filed, as firms observe each other, and hedge funds bankroll lawsuits in return for a portion of the takings. The outcome? National sovereignty and democracy are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the choices made by parliaments is that this stipulation has been incorporated – without public consent, and frequently under conditions of profound opacity – into international trade agreements.

A Specific Case: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The justice found that proposals to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the licence the previous administration had issued. Now, this victory could be compromised by an foreign court accountable to no one but the entities bringing the case.

During August, a company whose final controllers are based in the tax haven initiated proceedings versus the UK government. Last week a arbitration panel in the US capital was convened to hear it.

This firm is litigating against the UK for the money it would have generated if the mine had been permitted to go ahead. We have little idea how much this might be. Which individual is representing it in opposition to the state? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The state makes a decision, the high court validates it, then a foreign company contests it through an undemocratic private court, and a elected official works for its behalf.

The Russian Lawsuit

Concurrently that the court on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to challenge the penalties the UK enacted against him following the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: equivalent to half of nation's yearly income. Part of the counsel on his side? a prominent lawyer, married to the ex-UK leader.

International law scholars believe that the EU’s delay in using frozen state funds as security for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over elected governments might be preventing the funds Ukraine desperately needs.

False Assurances and Growing Threats

The public was told that these events could not occur. Previously, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An expert on this issue accused activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Cautionary notes that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were dismissed with general mockery.

That threat has come to pass. This year, energy and extraction companies have initiated a record number of cases against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – official measures to stop global warming. Firms have so far won vast sums via ISDS, of which energy giants have obtained the majority. That equates to the combined GDP