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Can you perceive our democratic process works? It could be similar to this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Rise of Shadow Courts

Nowadays, international firms, or the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at offshore tribunals made up of commercial attorneys. The cases take place behind closed doors. Differing from national judiciaries, these tribunals allow no opportunity to appeal or legal review. The general public are unable to file a case to them, nor can our government, or even businesses headquartered in this country. Access is granted solely for entities operating from foreign soil.

Should an arbitration panel determines that a legislative action could harm the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

This compensation are based not on actual losses but money the arbitrators conclude the company would perhaps have made. The administration might be compelled to drop the legislation. It is hesitant to enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as companies take cues from each other, and investment funds fund legal actions in exchange for a share of the awards. The result? Democratic sovereignty and popular rule are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the choices taken by elected bodies is that this provision has been inserted – absent public approval, and often in a climate of profound opacity – into international trade agreements.

A Real-World Instance: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The presiding officer ruled that proposals to open the first new deep coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have had zero effect on national carbon targets. The incoming administration later cancelled the permission the Tories had issued. Currently, this victory is under threat by an offshore tribunal reporting to only the entities petitioning it.

Last August, a firm whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. The previous week a tribunal in the US capital was convened to consider the case.

The company is litigating against the UK for the money it could have earned if the mine had been allowed to proceed. The public has little idea how much this could amount to. Who is serving as its counsel in opposition to the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The state makes a decision, the national judiciary supports it, then a foreign company contests it through an secretive private court, and a elected official represents its behalf.

An Oligarch's Lawsuit

On the same day that the court on the coal mine dispute was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case to date, but it seems likely that he’ll use the arbitration process to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has filed a claim against Luxembourg for this reason, claiming sixteen billion dollars: equivalent to half of government’s yearly budget. Among the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized Russian assets as collateral for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Escalating Costs

The public was told that these scenarios could not occur. Previously, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “The UK has signed trade agreement after trade deal and there has never been a issue in the past.” A consultant on this matter described critics 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 these lawsuits. Predictions that “as corporations start to realise the power bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That prediction has come to pass. This year, energy and mining firms have lodged a historic level of cases against nations across the economic spectrum, contesting – similar to the UK mine – government attempts to halt environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded the majority. That represents the combined GDP