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Can you perceive our democratic process functions? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. The law is upheld by the courts. That's it. However, that used to be how it operated in the past. Those days are over.

The Advent of Shadow Courts

Nowadays, international firms, or the wealthy individuals who own them, can sue governments for the regulations they pass, at secret arbitration panels made up of business advocates. The cases are conducted away from public scrutiny. Unlike our courts, these bodies allow no opportunity to appeal or judicial review. The general public are unable to file a case to them, and neither can our government, or even businesses based in this country. The door is open solely for businesses based overseas.

If a tribunal determines that a legislative action could harm the corporation’s anticipated profits, it has the power to grant damages of vast sums, potentially billions.

These sums constitute not actual losses but funds the tribunal officials conclude the company could potentially have made. The government might be compelled to abandon its policy. It is hesitant to passing future laws of a similar nature, for fear of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being brought, as firms observe each other, and hedge funds fund legal actions for a share of a portion of the awards. The outcome? Sovereignty and democracy are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the decisions taken by legislatures is that this provision has been inserted – without democratic mandate, and typically amid conditions of extreme secrecy – inside bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

A year ago, activists won a great victory at the senior court. The judge determined that plans to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine would have had no consequence on national carbon targets. The new government then withdrew the licence the former government had issued. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to only the companies filing the suit.

In August, a firm whose final controllers reside in the Cayman Islands lodged a claim against the UK government. Recently a arbitration panel in Washington DC was set up to consider the case.

The company is suing the UK for the revenue it would have generated if the mine had been allowed to go ahead. The public has little idea how much this could amount to. Who is acting on its behalf against the British government? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The state passes a law, the national judiciary supports it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

An Oligarch's Challenge

Concurrently that the court on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case so far, but it appears probable that he will utilise the ISDS mechanism to challenge the restrictions the UK imposed on him after the invasion of Ukraine. He has previously initiated proceedings against another European state with similar intent, demanding a colossal sum: an amount representing half government’s annual revenue. Part of the lawyers on his side? Cherie Blair, wife of the former British prime minister.

Legal experts argue that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that these events could not occur. Years ago, a government leader, advocating for the biggest and most dangerous of all investment pacts, stated: “The UK has signed investment treaty after trade deal and there has not been a case in the past.” An adviser on this issue labelled activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies start to realise the power they now possess, they will redirect their efforts from the weak nations to the strong ones” were met with widespread derision.

That prediction is now a reality. In the current period, fossil fuel and mining firms have lodged a historic level of claims against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – state efforts to halt climate breakdown. Corporations have thus far won $114bn via ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP