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What is your understand our democratic process functions? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills become law. Statutes is upheld by the courts. That's it. Well, that was how it once functioned. Not anymore.

The Rise of Shadow Courts

Nowadays, overseas companies, along with the billionaires who own them, can sue nation states for the policies they pass, at secret arbitration panels composed of business advocates. Such disputes take place behind closed doors. In contrast to domestic courts, these panels allow no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises headquartered in this country. They are open solely for corporations registered abroad.

If a tribunal finds that a law or policy may compromise the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These awards constitute not real financial harm but compensation the tribunal officials conclude the company could potentially have made. The government could be forced to rescind the measure. It will be deterred from passing future laws of a similar nature, due to the risk of facing litigation.

A System Growing Exponentially

Historically high figures of legal actions are being brought, as companies take cues from each other, and investment funds fund legal actions in exchange for a cut of the takings. The consequence? Democratic sovereignty and democracy are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the choices taken by elected bodies is that this clause has been incorporated – absent public approval, and typically amid an atmosphere of extreme secrecy – within bilateral investment treaties.

A Specific Case: The Cumbrian Coalmine

Last year, a conservation group achieved a major legal triumph at the senior court. The judge ruled that schemes to excavate the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the previous government, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The Labour government then withdrew the consent the former government had approved. Now, this legal outcome faces being overturned by an offshore tribunal reporting to exclusively the corporations petitioning it.

Last August, a corporate entity whose beneficial owners are based in the tax haven filed a lawsuit challenging the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has no clear indication how much this might be. Which individual is acting on its behalf in opposition to the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government passes a law, the high court upholds it, then a international entity disputes it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

The Russian Lawsuit

Simultaneously that the court on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case so far, but it appears probable that he will utilise the ISDS mechanism to challenge the penalties the UK imposed on him after the war in Ukraine. He has previously started suing Luxembourg on these grounds, seeking a colossal sum: an amount representing half nation's annual revenue. Included in the lawyers on his side? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists contend that the EU’s delay in leveraging immobilised state funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Escalating Risks

We were assured that these scenarios wouldn’t happen. Previously, a senior politician, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this issue accused activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations needed to fear such legal actions. Cautionary notes that “when companies grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were greeted by general mockery.

That threat has come to pass. This year, fossil fuel and resource corporations have filed a unprecedented number of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – official measures to halt environmental catastrophe. Firms have to date won vast sums by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP