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Can you perceive our democratic process functions? Perhaps something like this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. That's it. Yet, that was how it once functioned. No longer.

The Emergence of Shadow Courts

Today, international firms, or the oligarchs who own them, have the power to sue elected administrations for the laws they pass, at private courts made up of corporate lawyers. Such disputes are held behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, including businesses based in this country. Access is granted only to entities operating from foreign soil.

Should an arbitration panel finds that a legislative action may compromise the corporation’s expected profits, it can award damages of vast sums, running into billions.

This compensation constitute not tangible damages but funds the arbitrators determine the company would perhaps have made. The government might be compelled to rescind the measure. It is discouraged from introducing similar legislation in that area, for fear of facing litigation.

A System Growing Exponentially

Unprecedented levels of cases are being initiated, as companies observe each other, and investment funds fund legal actions in exchange for a share of the settlements. The consequence? Democratic sovereignty and democracy are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the rulings enacted by parliaments is that this provision has been incorporated – without democratic mandate, and often in conditions of profound opacity – into trade treaties.

A Real-World Instance: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the high court. The justice determined that schemes to open the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The Labour government then withdrew the permission the previous administration had granted. Currently, this legal outcome is under threat by an offshore tribunal accountable to exclusively the entities bringing the case.

In August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in the United States was convened to consider the case.

The claimant is litigating against the UK for the profits it might have made if the mine had been allowed to proceed. The public has no clear indication how much this might be. What legal team is serving as its counsel against the British government? A sitting MP, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic private court, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the coalmine case was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case to date, but it appears probable that he will utilise the tribunal to contest the penalties the UK enacted against him subsequent to the Russian aggression. He has already filed a claim against Luxembourg on these grounds, demanding $16bn: an amount representing half government’s annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that these scenarios were not possible. Years ago, a senior politician, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed investment treaty upon trade deal and there has not been a case in the past.” An expert on this matter described activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “when companies grasp the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning has come to pass. This year, fossil fuel and extraction companies have filed a record number of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to stop environmental catastrophe. Corporations have so far won vast sums through ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP