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Can you perceive our democratic process functions? Perhaps something like this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. Not anymore.

The Advent of Shadow Courts

Nowadays, foreign corporations, or the wealthy individuals behind them, have the power to sue governments for the policies they pass, at private courts staffed by business advocates. These proceedings are conducted away from public scrutiny. Unlike our courts, these tribunals grant no avenue for appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. They are open exclusively to entities based overseas.

When a secret court rules that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, even billions.

These sums represent not tangible damages but money the arbitrators conclude the company could potentially have made. The state could be forced to abandon its policy. It is deterred from enacting future policies in that area, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and private equity fund legal actions in return for a cut of the awards. The consequence? Sovereignty and democracy are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override a country's own laws and the rulings taken by parliaments is that this clause has been inserted – without public consent, and typically amid a climate of total confidentiality – into trade treaties.

A Specific Case: The UK Coal Mine

A year ago, a conservation group achieved a major legal triumph at the High Court. The justice ruled that plans to open the first deep coalmine in the UK for three decades, in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have no consequence on our carbon budgets. The new government later cancelled the consent the Tories had issued. Today, this victory is under threat by an secret arbitration panel reporting to no one but the corporations filing the suit.

In August, a corporate entity whose final controllers reside in the offshore financial centre lodged a claim challenging the UK government. The previous week a tribunal in Washington DC was set up to consider the case.

The company is suing the UK for the money it could have earned if the mine had been permitted to commence operations. The public has little idea how much this sum represents. Who is acting on its behalf in opposition to the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a foreign company disputes it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the coalmine case was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case to date, but it appears probable that he will utilise the arbitration process to fight the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg for this reason, claiming a colossal sum: an amount representing half state's annual revenue. Among the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that such things were not possible. Previously, a former prime minister, advocating for the most significant and hazardous of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this matter labelled campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about these lawsuits. Predictions that “when companies start to realise the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were dismissed with widespread derision.

That prediction is now a reality. This year, fossil fuel and extraction companies have filed a historic level of suits against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – official measures to prevent global warming. Companies have so far won $114bn by using ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP