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How do you perceive our democratic process functions? Maybe something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills become law. The law is upheld by the courts. Simple as that. Well, that was how it used to work. No longer.

The Advent of Shadow Courts

Nowadays, foreign corporations, along with the oligarchs that control them, have the power to sue elected administrations for the laws they pass, at private courts made up of commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels grant no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, nor can our government, including enterprises operating from this country. Access is granted exclusively to entities operating from foreign soil.

When a secret court finds that a legislative action could harm the corporation’s expected profits, it has the power to grant compensation of vast sums, potentially billions.

These sums are based not on tangible damages but money the tribunal officials determine the company would perhaps have made. The administration might be compelled to abandon its policy. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of being sued.

A System Running Rampant

Historically high figures of cases are being initiated, as firms learn from each other, and private equity fund legal actions in return for a share of the takings. The consequence? National sovereignty and democracy are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the rulings enacted by legislatures is that this provision has been inserted – absent public approval, and frequently under a climate of total confidentiality – into international trade agreements.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, environmental campaigners won a great victory at the high court. The presiding officer ruled that schemes to dig the first deep coalmine in the UK for a generation, in Cumbria, were illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine would have zero effect on our carbon budgets. The new government then withdrew the consent the previous administration had issued. Today, this legal outcome faces being overturned by an secret arbitration panel answering to exclusively the entities petitioning it.

Last August, a company whose ultimate owners are located in the tax haven lodged a claim against the UK government. Last week a tribunal in Washington DC was set up to hear it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. Citizens have no idea how much this could amount to. What legal team is acting on its behalf challenging the state? A sitting MP, and ex-law officer in the Conservative government, the noted patriot the MP. The government enacts a policy, the domestic court upholds it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Case

Concurrently that the court on the coal mine dispute was convened, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case so far, but it seems likely that he’ll use the tribunal to contest the sanctions the UK levied against him after the invasion of Ukraine. He has previously initiated proceedings against another European state with similar intent, seeking a colossal sum: half that state's yearly budget. Included in the legal team representing him there? a prominent lawyer, married to the former British prime minister.

International law scholars believe that the EU’s procrastination in using frozen state funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over elected governments may be obstructing the funds Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that these scenarios wouldn’t happen. In 2014, a senior politician, championing the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty upon trade deal and we have never seen a issue in the past.” An adviser on this matter labelled campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries had to worry about these lawsuits. Predictions that “once firms begin to understand the power they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by scepticism.

That warning is now a reality. In the current period, fossil fuel and extraction companies have lodged a unprecedented number of cases against nations rich and poor, contesting – like the example of the Whitehaven project – official measures to halt climate breakdown. Firms have thus far won vast sums by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP