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What is your perceive our democratic process operates? Maybe along the lines of this. We elect MPs. They vote on bills. When a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. However, that’s how it used to work. Those days are over.

The Rise of Shadow Courts

Today, overseas companies, along with the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are held away from public scrutiny. Differing from national judiciaries, these bodies grant no avenue for appeal or legal review. The general public are unable to file a case to them, just as our government, or even enterprises based in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel rules that a legislative action could harm the corporation’s expected profits, it can award damages of vast sums, potentially billions.

This compensation constitute not tangible damages but money the panel members decide the company could potentially have made. The government may have to drop the legislation. It becomes discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of disputes are being filed, as corporations take cues from each other, and private equity fund legal actions in exchange for a cut of the awards. The result? National sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the decisions taken by legislatures is that this clause has been inserted – absent public approval, and typically amid conditions of extreme secrecy – into international trade agreements.

A Specific Example: The UK Coal Mine

Twelve months ago, activists secured a significant win at the High Court. The presiding officer determined that plans to excavate the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no impact on our carbon budgets. The Labour government subsequently revoked the consent the previous administration had issued. Currently, this victory is under threat by an offshore tribunal reporting to exclusively the corporations filing the suit.

In August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings versus the UK government. The previous week a tribunal in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to proceed. We have no clear indication how much this might be. Which individual is representing it in opposition to the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The state passes a law, the domestic court upholds it, then a foreign company disputes it through an secretive arbitration panel, and a elected official acts on its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the penalties the UK enacted against him after the invasion of Ukraine. He has started suing another European state with similar intent, claiming a colossal sum: half that government’s annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

International law scholars contend that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.

Empty Promises and Growing Costs

The public was told that these events could not occur. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, told us: “The UK has signed trade deal after trade deal and we have never seen a issue in the past.” An adviser on this matter labelled activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms begin to understand the authority bestowed upon them, they will turn their attention from the weak nations to the strong ones” were greeted by scepticism.

That threat is now a reality. In the current period, oil and gas and mining firms have lodged a historic level of claims against nations rich and poor, challenging – similar to the Cumbrian coalmine – state efforts to prevent climate breakdown. Firms have to date won vast sums via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP