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Can you understand our democratic process operates? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Emergence of Shadow Courts

In the modern era, foreign corporations, and the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at offshore tribunals staffed by commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these tribunals allow no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even businesses headquartered in this country. They are open only to corporations registered abroad.

When a secret court rules that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, potentially billions.

These awards constitute not real financial harm but compensation the tribunal officials determine the company might otherwise have made. The government could be forced to drop the legislation. It is discouraged from passing future laws of a similar nature, due to the risk of being sued.

A Process Running Rampant

Unprecedented levels of legal actions are being brought, as corporations observe each other, and private equity fund legal actions in exchange for a cut of the takings. The result? Democratic sovereignty and popular rule are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings taken by elected bodies is that this clause has been written – absent public approval, and often in an atmosphere of total confidentiality – inside international trade agreements.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The presiding officer found that plans to dig the first deep coalmine in the UK for three decades, in northwest England, were found to be unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have had no impact on national carbon targets. The Labour government later cancelled the permission the Tories had issued. Currently, this victory could be compromised by an foreign court accountable to only the companies bringing the case.

Last August, a corporate entity whose ultimate owners are located in the Cayman Islands filed a lawsuit challenging the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this might be. Who is representing it against the state? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The government enacts a policy, the domestic court validates it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case so far, but it appears probable that he will utilise the arbitration process to challenge the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has started suing a small nation for this reason, seeking sixteen billion dollars: half that state's annual revenue. Among the legal team on his side? the wife of a former prime minister, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in using frozen oligarchs' funds as collateral for its aid for Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states may be obstructing the finance Ukraine critically depends on.

False Assurances and Growing Risks

We were assured that such things could not occur. Years ago, a former prime minister, advocating for the most significant and hazardous of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this issue described campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “once firms grasp the authority they now possess, they will turn their attention from the weak nations to the strong ones” were dismissed with scepticism.

That warning has now materialised. This year, energy and resource corporations have lodged a historic level of suits against nations across the economic spectrum, opposing – similar to the UK mine – official measures to prevent climate breakdown. Firms have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP