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What is your reckon our democratic process functions? It could be something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. That's it. However, that’s how it once functioned. Not anymore.

The Rise of Shadow Courts

In the modern era, international firms, or the wealthy individuals who own them, can sue governments for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings are conducted in secret. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even companies headquartered in this country. Access is granted solely for corporations operating from foreign soil.

Should an arbitration panel rules that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

These sums represent not actual losses but compensation the panel members decide the company might otherwise have made. The administration may have to drop the legislation. It becomes discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Process Growing Exponentially

Historically high figures of legal actions are being initiated, as firms learn from each other, and private equity fund legal actions for a share of a portion of the settlements. The result? Sovereignty and democracy are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the rulings made by elected bodies is that this clause has been written – without public consent, and typically amid a climate of total confidentiality – inside international trade agreements.

A Real-World Instance: The UK Coalmine

Last year, activists achieved a major legal triumph at the senior court. The judge determined that schemes to dig the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no consequence on climate commitments. The new government later cancelled the licence the former government had issued. Today, this victory could be compromised by an offshore tribunal accountable to exclusively the companies petitioning it.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands filed a lawsuit against the UK government. Recently a tribunal in the United States was established to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to proceed. The public has no clear indication how much this could amount to. Who is acting on its behalf challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a international entity challenges it through an undemocratic offshore tribunal, and a elected official represents its behalf.

The Russian Case

Concurrently that the court on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he will utilise the tribunal to fight the penalties the UK levied against him following the invasion of Ukraine. He has previously initiated proceedings against a small nation with similar intent, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Included in the counsel on his side? Cherie Blair, wife of the former British prime minister.

International law scholars argue that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over elected governments might be preventing the money Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that these scenarios wouldn’t happen. Previously, a government leader, promoting the biggest and most dangerous of all such treaties, stated: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” An expert on this matter accused activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Predictions that “once firms begin to understand the authority they’ve been granted, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That prediction is now a reality. Recently, energy and extraction companies have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – similar to the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have thus far won vast sums by using ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP