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What is your reckon our democratic process works? Maybe similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills become law. Legislation is upheld by the courts. Simple as that. However, that was how it operated in the past. Those days are over.

The Rise of Shadow Courts

Nowadays, foreign corporations, or the wealthy individuals who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these tribunals allow no right of appeal or judicial review. The general public are unable to file a case to them, just as our government, including companies operating from this country. The door is open exclusively to businesses registered abroad.

If a tribunal determines that a government measure could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, running into billions.

These awards constitute not actual losses but funds the tribunal officials decide the company might otherwise have made. The government may have to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, for fear of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of cases are being initiated, as corporations learn from each other, and investment funds finance suits in return for a share of the takings. The consequence? Sovereignty and popular rule are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the rulings enacted by elected bodies is that this provision has been written – absent public approval, and often in a climate of total confidentiality – within bilateral investment treaties.

A Concrete Case: The UK Coalmine

A year ago, environmental campaigners won a great victory at the senior court. The justice ruled that proposals to dig the first deep coalmine in the UK for three decades, in northwest England, had been unlawfully approved by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The incoming administration then withdrew the licence the Tories had granted. Currently, this success could be compromised by an foreign court accountable to only the entities bringing the case.

In August, a firm whose beneficial owners are based in the offshore financial centre initiated proceedings versus the UK government. Recently a tribunal in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to commence operations. We have no clear indication how much this might be. Which individual is acting on its behalf in opposition to the UK administration? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot the MP. The administration enacts a policy, the national judiciary supports it, then a foreign company challenges it through an unaccountable offshore tribunal, and a elected official represents its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case at present, but it appears probable that he’ll use the arbitration process to challenge the restrictions the UK enacted against him after the war in Ukraine. He has filed a claim against a small nation on these grounds, seeking sixteen billion dollars: an amount representing half nation's annual revenue. Included in the lawyers acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

Legal experts argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Risks

We were assured that such things could not occur. Previously, a senior politician, promoting the most significant and hazardous of all such treaties, declared: “The UK has signed trade deal after trade deal and there has not been a case in the past.” A consultant on this topic labelled campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear such legal actions. Cautionary notes that “as corporations grasp the influence they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That threat has come to pass. Recently, fossil fuel and resource corporations have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the Whitehaven project – official measures to stop environmental catastrophe. Firms have to date won $114bn via ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP