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How do you understand our democratic process functions? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills pass into law. The law is upheld by the courts. End of story. Yet, that used to be how it used to work. Those days are over.

The Rise of Shadow Tribunals

In the modern era, overseas companies, and the wealthy individuals that control them, have the power to sue governments for the laws they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are conducted behind closed doors. Unlike our courts, these panels provide no avenue for appeal or judicial review. You or I are unable to file a case to them, nor can our government, including businesses operating from this country. Access is granted solely for entities operating from foreign soil.

When a secret court determines that a government measure could harm the corporation’s projected profits, it may order financial penalties of vast sums, even billions.

This compensation are based not on tangible damages but money the arbitrators conclude the company would perhaps have made. The government might be compelled to drop the legislation. It becomes hesitant to enacting future policies in that area, for fear of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of legal actions are being initiated, as corporations observe each other, and private equity fund legal actions for a share of a share of the settlements. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the choices enacted by parliaments is that this provision has been written – without democratic mandate, and frequently under conditions of profound opacity – into international trade agreements.

A Concrete Case: The UK Coal Mine

Last year, environmental campaigners won a great victory at the high court. The presiding officer found that proposals to open the first major coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the previous government, which had accepted the questionable argument that the mine could have zero effect on our carbon budgets. The new government later cancelled the licence the Tories had approved. Today, this victory is under threat by an foreign court answering to exclusively the companies bringing the case.

In August, a firm whose ultimate owners are based in the Cayman Islands lodged a claim versus the UK government. The previous week a dispute settlement body in the United States was established to consider the case.

The claimant is suing the UK for the profits it might have made if the mine had been permitted to commence operations. The public has no clear indication how much this might be. What legal team is serving as its counsel against the British government? An elected representative, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The administration passes a law, the high court supports it, then a international entity contests it through an undemocratic private court, and a member of our parliament acts on its behalf.

The Russian Challenge

On the same day that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it appears probable that he may employ the arbitration process to challenge the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, demanding sixteen billion dollars: an amount representing half state's yearly income. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

Trade specialists believe that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Threats

We were assured that such things wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this topic described activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by such legal actions. Predictions that “once firms grasp the influence they now possess, they will shift their focus from the poorer states to the strong ones” were met with general mockery.

That warning is now a reality. This year, energy and extraction companies have initiated a historic level of cases against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Corporations have to date won vast sums by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP