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What is your reckon our democratic process operates? It could be similar to this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Emergence of Shadow Courts

Nowadays, foreign corporations, and the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, including enterprises headquartered in this country. They are open exclusively to entities operating from foreign soil.

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

These awards are based not on real financial harm but funds the arbitrators determine the company could potentially have made. The government may have to drop the legislation. It is deterred from introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of cases are being initiated, as corporations observe each other, and hedge funds bankroll lawsuits in return for a portion of the takings. The consequence? Democratic sovereignty and popular rule are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the choices enacted by legislatures is that this provision has been inserted – without public consent, and typically amid conditions of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The judge found that plans to dig the first major coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine could have no impact on our carbon budgets. The new government then withdrew the consent the previous administration had issued. Today, this legal outcome is under threat by an offshore tribunal reporting to only the companies petitioning it.

In August, a company whose final controllers reside in the offshore financial centre filed a lawsuit against the UK government. Last week a tribunal in Washington DC was set up to consider the case.

The company is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. The public has no idea how much this might be. Who is representing it challenging the UK administration? A sitting MP, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The state enacts a policy, the high court upholds it, then a international entity disputes it through an undemocratic private court, and a elected official represents its behalf.

A Sanctions Challenge

Concurrently that the panel on the coalmine case was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case at present, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK imposed on him following the war in Ukraine. He has previously initiated proceedings against a small nation with similar intent, seeking a colossal sum: an amount representing half government’s annual revenue. Among the counsel on his side? a prominent lawyer, wife of the former British prime minister.

Trade specialists contend that the EU’s delay in using frozen state funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

False Assurances and Growing Risks

We were assured that these scenarios could not occur. Years ago, a senior politician, advocating for the largest and riskiest of all investment pacts, declared: “We’ve signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this matter described campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries needed to fear these lawsuits. Predictions that “when companies begin to understand the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That prediction has now materialised. Recently, fossil fuel and mining firms have lodged a historic level of claims against nations both wealthy and developing, opposing – like the example of the UK mine – government attempts to prevent climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP