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How do you understand our democratic process functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that used to be how it used to work. Not anymore.

The Advent of Shadow Courts

Today, foreign corporations, along with the oligarchs behind them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings are held away from public scrutiny. In contrast to domestic courts, these bodies provide no right of appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises based in this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

These sums represent not real financial harm but money the tribunal officials determine the company might otherwise have made. The state may have to drop the legislation. It will be deterred from introducing similar legislation in that area, for fear of being sued.

A System Growing Exponentially

Unprecedented levels of legal actions are being filed, as firms take cues from each other, and private equity bankroll lawsuits in exchange for a cut of the settlements. The result? Sovereignty and popular rule are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the choices made by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid conditions of profound opacity – into international trade agreements.

A Specific Example: The Whitehaven Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The judge ruled that plans to open the first new deep coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine would have zero effect on national carbon targets. The incoming administration then withdrew the licence the former government had issued. Currently, this victory faces being overturned by an offshore tribunal accountable to no one but the companies bringing the case.

Last August, a corporate entity whose final controllers are based in the Cayman Islands initiated proceedings challenging the UK government. Last week a tribunal in the US capital was convened to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this sum represents. Who is representing it against the British government? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Challenge

On the same day that the panel on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case at present, but it seems likely that he’ll use the arbitration process to challenge the penalties the UK enacted against him following the invasion of Ukraine. He has started suing a small nation on these grounds, demanding $16bn: an amount representing half nation's yearly income. Part of the legal team acting for him in that case? the wife of a former prime minister, wife of the previous PM.

International law scholars contend that the EU’s hesitation in utilising seized Russian assets as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations might be preventing the money Ukraine desperately needs.

Empty Promises and Escalating Risks

Politicians promised that these events could not occur. Years ago, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this topic accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “once firms begin to understand the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by general mockery.

That threat has come to pass. Recently, energy and extraction companies have initiated a historic level of cases against nations rich and poor, challenging – similar to the Whitehaven project – state efforts to halt environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP