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What is your reckon our democratic process works? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that was how it used to work. No longer.

The Rise of Shadow Courts

Today, overseas companies, or the billionaires who own them, are able to litigate against nation states for the policies they pass, at secret arbitration panels composed of business advocates. Such disputes take place in secret. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, just as our government, including businesses based in this country. They are open only to entities operating from foreign soil.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These awards constitute not tangible damages but compensation the panel members decide the company might otherwise have made. The government might be compelled to abandon its policy. It is discouraged from introducing similar legislation along the same lines, worried about incurring a lawsuit.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies take cues from each other, and private equity bankroll lawsuits in return for a portion of the settlements. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the rulings enacted by legislatures is that this stipulation has been incorporated – absent public approval, and typically amid conditions of profound opacity – inside international trade agreements.

A Concrete Case: The Whitehaven Coal Mine

Twelve months ago, activists won a great victory at the High Court. The judge found that proposals to open the first new deep coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have zero effect on national carbon targets. The incoming administration then withdrew the licence the previous administration had issued. Today, this victory could be compromised by an foreign court accountable to no one but the companies bringing the case.

In August, a corporate entity whose ultimate owners are located in the offshore financial centre lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was convened to adjudicate on it.

The claimant is suing the UK for the revenue it might have made if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. Which individual is representing it challenging the British government? A member of parliament, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The state makes a decision, the high court upholds it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

On the same day that the court on the coal mine dispute was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK enacted against him following the Russian aggression. He has previously started suing Luxembourg on these grounds, demanding sixteen billion dollars: half that state's yearly budget. Part of the lawyers representing him there? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists contend that the EU’s delay in leveraging immobilised Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over elected governments may be obstructing the money Ukraine urgently requires.

False Assurances and Growing Risks

The public was told that these events were not possible. In 2014, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this issue accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were greeted by widespread derision.

That threat has now materialised. This year, oil and gas and mining firms have lodged a record number of claims against nations rich and poor, challenging – similar to the Cumbrian coalmine – state efforts to halt global warming. Firms have so far won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP