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How do you understand our democratic process operates? It could be along the lines of this. We elect MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that was how it once functioned. Those days are over.

The Rise of Shadow Courts

In the modern era, foreign corporations, or the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are held in secret. Differing from national judiciaries, these panels provide no right of appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. The door is open solely for entities operating from foreign soil.

Should an arbitration panel rules that a legislative action might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions, running into billions.

This compensation are based not on tangible damages but funds the arbitrators determine the company might otherwise have made. The administration might be compelled to rescind the measure. It becomes discouraged from passing future laws in that area, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being filed, as companies learn from each other, and private equity fund legal actions for a share of a cut of the awards. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the rulings enacted by legislatures is that this clause has been inserted – without public consent, and frequently under an atmosphere of profound opacity – into international trade agreements.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, environmental campaigners secured a significant win at the high court. The presiding officer ruled that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, were unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have no consequence on our carbon budgets. The incoming administration then withdrew the licence the former government had approved. Now, this victory is under threat by an secret arbitration panel accountable to only the companies filing the suit.

In August, a corporate entity whose ultimate owners are based in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in the US capital was convened to adjudicate on it.

The claimant is suing the UK for the money it would have generated if the mine had been allowed to go ahead. The public has no idea how much this sum represents. Who is serving as its counsel challenging the British government? An elected representative, and ex-law officer in the previous government, that great patriot the MP. The administration makes a decision, the high court supports it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case at present, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK imposed on him after the invasion of Ukraine. He has already filed a claim against a small nation on these grounds, seeking a colossal sum: an amount representing half government’s yearly budget. Included in the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

International law scholars contend that the EU’s delay in utilising seized state funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over elected governments could be blocking the funds Ukraine critically depends on.

Misleading Claims and Mounting Threats

The public was told that these scenarios could not occur. Years ago, a former prime minister, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this topic described campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms grasp the power they’ve been granted, they will shift their focus from the poorer states to the developed economies” were dismissed with scepticism.

That threat has now materialised. In the current period, oil and gas and mining firms have filed a record number of claims against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – official measures to prevent climate breakdown. Firms have thus far won $114bn via ISDS, of which energy giants have secured the majority. That equates to the combined GDP