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Can you perceive our democratic process works? It could be along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills become law. Legislation are enforced by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Advent of Shadow Courts

In the modern era, foreign corporations, along with the wealthy individuals behind them, can sue governments for the regulations they pass, at secret arbitration panels composed of business advocates. Such disputes are conducted in secret. Unlike our courts, these tribunals grant no opportunity to appeal or legal review. You or I cannot take a case to them, nor can our government, or even businesses headquartered in this country. The door is open only to entities operating from foreign soil.

When a secret court determines that a law or policy could harm the corporation’s projected profits, it can award compensation of vast sums, even billions.

This compensation constitute not real financial harm but funds the arbitrators conclude the company would perhaps have made. The administration could be forced to drop the legislation. It will be discouraged from enacting future policies of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations observe each other, and private equity fund legal actions in return for a share of the takings. The outcome? Sovereignty and democracy are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the choices enacted by elected bodies is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of profound opacity – into bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

A year ago, activists won a great victory at the High Court. The presiding officer ruled that plans to dig the first new deep coal mine in the UK for a generation, in Cumbria, had been unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine could have zero effect on our carbon budgets. The new government later cancelled the permission the Tories had approved. Now, this legal outcome could be compromised by an secret arbitration panel accountable to exclusively the entities bringing the case.

In August, a corporate entity whose beneficial owners are located in the tax haven initiated proceedings versus the UK government. Recently a dispute settlement body in the United States was set up to adjudicate on it.

The company is suing the UK for the profits it could have earned if the mine had received permission to proceed. The public has no idea how much this sum represents. Which individual is serving as its counsel in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the high court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are little of the case at present, but it appears probable that he’ll use the tribunal to contest the sanctions the UK imposed on him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, demanding sixteen billion dollars: half that nation's annual revenue. Among the legal team on his side? a prominent lawyer, married to the former British prime minister.

Trade specialists argue that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its financial support package stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.

Empty Promises and Escalating Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a former prime minister, championing the biggest and most dangerous of all these agreements, told us: “The UK has signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this matter accused activists of “alarmism … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear ISDS claims. Predictions that “when companies start to realise the power they now possess, they will redirect their efforts from the poorer states to the strong ones” were met with widespread derision.

That threat has come to pass. In the current period, energy and resource corporations have initiated a record number of suits against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to prevent global warming. Corporations have thus far won vast sums via ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP