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Can you understand our democratic process functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, foreign corporations, along with the oligarchs that control them, have the power to sue nation states for the laws they pass, at private courts composed of business advocates. These proceedings are conducted in secret. In contrast to domestic courts, these tribunals grant no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. The door is open only to entities based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s projected profits, it may order damages of hundreds of millions, running into billions.

These sums constitute not actual losses but compensation the arbitrators decide the company would perhaps have made. The government might be compelled to drop the legislation. It will be hesitant to enacting future policies of a similar nature, worried about facing litigation.

A Process Growing Exponentially

Historically high figures of cases are being brought, as firms observe each other, and private equity fund legal actions for a share of a share of the takings. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the decisions enacted by legislatures is that this provision has been inserted – absent public approval, and typically amid a climate of total confidentiality – into bilateral investment treaties.

A Specific Instance: The UK Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The justice ruled that schemes to dig the first major coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect on national carbon targets. The Labour government subsequently revoked the permission the former government had granted. Today, this success could be compromised by an offshore tribunal answering to exclusively the companies filing the suit.

In August, a company whose beneficial owners are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a tribunal in Washington DC was established to hear it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. We have little idea how much this could amount to. What legal team is serving as its counsel challenging the state? An elected representative, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The state makes a decision, the high court validates it, then a foreign company contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it appears probable that he’ll use the tribunal to challenge the penalties the UK imposed on him following the war in Ukraine. He has already filed a claim against another European state for this reason, claiming $16bn: an amount representing half government’s yearly income. Among the legal team acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in leveraging immobilised state funds as guarantee for its financial support package stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the finance Ukraine desperately needs.

False Assurances and Mounting Risks

Politicians promised that such things were not possible. In 2014, a government leader, promoting the biggest and most dangerous of all these agreements, declared: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” An expert on this matter labelled critics of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Cautionary notes that “when companies start to realise the authority bestowed upon them, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That threat has now materialised. Recently, oil and gas and resource corporations have initiated a unprecedented number of cases against nations rich and poor, challenging – like the example of the UK mine – official measures to stop environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured the majority. That equates to the combined GDP