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Can you perceive our democratic process works? It could be similar to this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills become law. Legislation is upheld by the courts. That's it. However, that used to be how it used to work. Those days are over.

The Rise of Shadow Courts

In the modern era, international firms, along with the billionaires who own them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. Such disputes take place behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, including businesses operating from this country. They are open exclusively to corporations registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s expected profits, it can award damages of hundreds of millions, even billions.

This compensation constitute not real financial harm but money the arbitrators decide the company could potentially have made. The state could be forced to drop the legislation. It will be hesitant to enacting future policies of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being initiated, as companies take cues from each other, and investment funds bankroll lawsuits for a share of a share of the takings. The outcome? Democratic sovereignty and popular rule are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the choices made by legislatures is that this provision has been incorporated – without democratic mandate, and often in conditions of profound opacity – into bilateral investment treaties.

A Specific Example: The UK Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that plans to excavate the first major coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the Conservative government, which had endorsed the questionable argument that the mine could have no impact on national carbon targets. The new government then withdrew the licence the Tories had granted. Today, this legal outcome faces being overturned by an secret arbitration panel reporting to no one but the corporations filing the suit.

During August, a firm whose beneficial owners reside in the tax haven initiated proceedings versus the UK government. Last week a tribunal in the United States was set up to consider the case.

This firm is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has little idea how much this could amount to. Who is representing it challenging the UK administration? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a foreign company contests it through an undemocratic private court, and a elected official works for its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case to date, but it appears probable that he’ll use the tribunal to contest the penalties the UK levied against him subsequent to the war in Ukraine. He has already initiated proceedings against Luxembourg with similar intent, claiming $16bn: an amount representing half state's annual revenue. Part of the lawyers on his side? Cherie Blair, married to the previous PM.

Trade specialists believe that the EU’s procrastination in utilising seized Russian assets as security for its financial support package is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over sovereign states may be obstructing the finance Ukraine urgently requires.

Empty Promises and Growing Threats

The public was told that these events were not possible. Years ago, a senior politician, promoting the biggest and most dangerous of all such treaties, told us: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this issue described critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations start to realise the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. This year, fossil fuel and mining firms have lodged a record number of cases against nations both wealthy and developing, opposing – similar to the UK mine – state efforts to stop global warming. Corporations have thus far won $114bn via ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP