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Can you understand our democratic process works? Perhaps something like this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law is maintained by the courts. That's it. Well, that’s how it once functioned. Not anymore.

The Emergence of Shadow Courts

Nowadays, international firms, and the oligarchs who own them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. The cases take place in secret. Unlike our courts, these panels provide no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including enterprises headquartered in this country. The door is open exclusively to entities based overseas.

Should an arbitration panel finds that a legislative action might diminish the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These awards constitute not real financial harm but money the panel members decide the company would perhaps have made. The government could be forced to drop the legislation. It is discouraged from enacting future policies of a similar nature, for fear of being sued.

A Mechanism Spiralling Out of Control

Record numbers of cases are being filed, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The outcome? Sovereignty and democratic governance are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the rulings made by parliaments is that this provision has been written – without public consent, and often in conditions of extreme secrecy – inside bilateral investment treaties.

A Concrete Case: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The presiding officer determined that schemes to open the first new deep coal mine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the consent the previous administration had issued. Today, this legal outcome faces being overturned by an foreign court answering to exclusively the corporations filing the suit.

Last August, a corporate entity whose beneficial owners reside in the Cayman Islands filed a lawsuit challenging the UK government. Last week a dispute settlement body in the US capital was established to consider the case.

This firm is suing the UK for the revenue it would have generated if the mine had received permission to commence operations. The public has little idea how much this might be. What legal team is representing it challenging the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the domestic court validates it, then a international entity disputes it through an undemocratic private court, and a elected official acts on its behalf.

A Sanctions Case

On the same day that the panel on the mining lawsuit was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case at present, but it appears probable that he will utilise the ISDS mechanism to challenge the restrictions the UK enacted against him following the war in Ukraine. He has previously started suing a small nation on these grounds, seeking $16bn: half that nation's annual revenue. Part of the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts contend that the EU’s hesitation in leveraging immobilised state funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states may be obstructing the money Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that these scenarios were not possible. Years ago, a senior politician, advocating for the most significant and hazardous of all investment pacts, declared: “The UK has signed trade agreement upon trade deal and we have never seen a issue in the past.” A consultant on this matter labelled activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies begin to understand the power they now possess, they will shift their focus from the poorer states to the developed economies” were dismissed with general mockery.

That prediction has now materialised. Recently, oil and gas and resource corporations have lodged a record number of suits against nations rich and poor, challenging – like the example of the UK mine – state efforts to prevent global warming. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP