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What is your understand our democratic process functions? Maybe along the lines of this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. Legislation is upheld by the courts. Simple as that. However, that was how it operated in the past. No longer.

The Advent of Shadow Courts

In the modern era, foreign corporations, or the oligarchs that control them, can sue elected administrations for the policies they pass, at secret arbitration panels composed of business advocates. The cases are conducted in secret. Unlike our courts, these bodies allow no opportunity to appeal or legal review. The general public are barred from bringing a case to them, and neither can our government, including companies based in this country. Access is granted only to entities based overseas.

If a tribunal rules that a government measure may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

This compensation constitute not actual losses but funds the panel members decide the company would perhaps have made. The state may have to abandon its policy. It becomes deterred from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of cases are being initiated, as firms observe each other, and private equity bankroll lawsuits in exchange for a cut of the awards. The outcome? Democratic sovereignty and democratic governance are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the choices made by elected bodies is that this provision has been written – absent public approval, and often in conditions of total confidentiality – into international trade agreements.

A Real-World Example: The UK Coal Mine

A year ago, activists won a great victory at the High Court. The justice ruled that proposals to open the first major coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had zero effect on national carbon targets. The incoming administration then withdrew the licence the former government had granted. Now, this victory is under threat by an foreign court accountable to no one but the entities bringing the case.

In August, a firm whose beneficial owners are based in the offshore financial centre filed a lawsuit against the UK government. Recently a tribunal in the United States was set up to adjudicate on it.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. Citizens have no clear indication how much this could amount to. What legal team is serving as its counsel against the British government? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the high court validates it, then a foreign company contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Challenge

Concurrently that the court on the coal mine dispute was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case so far, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK enacted against him subsequent to the war in Ukraine. He has initiated proceedings against a small nation for this reason, seeking sixteen billion dollars: equivalent to half of state's yearly budget. Included in the counsel representing him there? the wife of a former prime minister, spouse of the previous PM.

Legal experts believe that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over democratic administrations might be preventing the finance Ukraine desperately needs.

Empty Promises and Mounting Threats

Politicians promised that such things were not possible. Years ago, a former prime minister, advocating for the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter described campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations needed to fear these lawsuits. Predictions that “as corporations start to realise the influence they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with widespread derision.

That prediction has come to pass. In the current period, energy and extraction companies have initiated a unprecedented number of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to halt environmental catastrophe. Companies have to date won $114bn by using ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP