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Can you perceive our democratic process functions? Maybe along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills become law. The law are enforced by the courts. Simple as that. Well, that was how it used to work. No longer.

The Advent of Shadow Courts

Nowadays, international firms, or the oligarchs behind them, can sue governments for the regulations they pass, at private courts staffed by business advocates. The cases take place away from public scrutiny. Differing from national judiciaries, these panels allow no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, or even companies headquartered in this country. They are open solely for entities operating from foreign soil.

Should an arbitration panel finds that a legislative action may compromise the corporation’s expected profits, it can award compensation of hundreds of millions, running into billions.

These sums constitute not real financial harm but money the tribunal officials determine the company might otherwise have made. The state might be compelled to drop the legislation. It will be hesitant to introducing similar legislation along the same lines, for fear of being sued.

A Mechanism Running Rampant

Historically high figures of cases are being initiated, as corporations take cues from each other, and hedge funds bankroll lawsuits in return for a share of the settlements. The consequence? National sovereignty and popular rule are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the decisions taken by elected bodies is that this provision has been written – without public consent, and frequently under conditions of profound opacity – into bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

A year ago, activists won a great victory at the High Court. The judge found that schemes to dig the first deep coalmine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine would have had no impact on climate commitments. The new government later cancelled the consent the previous administration had granted. Currently, this success faces being overturned by an offshore tribunal answering to only the entities filing the suit.

Last August, a company whose ultimate owners are based in the Cayman Islands filed a lawsuit versus the UK government. Last week a arbitration panel in the US capital was established to adjudicate on it.

This firm is suing the UK for the profits it might have made if the mine had been permitted to proceed. We have no idea how much this sum represents. Who is acting on its behalf in opposition to the British government? A sitting MP, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The government makes a decision, the high court upholds it, then a foreign company contests it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case so far, but it appears probable that he may employ the arbitration process to contest the penalties the UK enacted against him after the Russian aggression. He has previously initiated proceedings against another European state on these grounds, seeking $16bn: equivalent to half of government’s annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these events could not occur. Years ago, a former prime minister, championing the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade agreement after trade deal and we have never seen a problem in the past.” A consultant on this issue accused activists of “alarmism … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations begin to understand the influence they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with scepticism.

That prediction has now materialised. This year, oil and gas and mining firms have filed a record number of cases against nations rich and poor, opposing – as in the case of the UK mine – government attempts to halt environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained $84bn. That represents the combined GDP