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What is your understand our democratic process works? Perhaps something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. The law are enforced by the courts. Simple as that. However, that used to be how it once functioned. No longer.

The Emergence of Shadow Courts

Nowadays, foreign corporations, or the wealthy individuals who own them, have the power to sue elected administrations for the policies they pass, at private courts made up of commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. You or I cannot take a case to them, and neither can our government, or even businesses based in this country. The door is open only to entities based overseas.

If a tribunal finds that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant damages of vast sums, running into billions.

These sums constitute not actual losses but funds the arbitrators conclude the company could potentially have made. The state could be forced to abandon its policy. It becomes deterred from enacting future policies of a similar nature, due to the risk of being sued.

A Mechanism Growing Exponentially

Record numbers of legal actions are being filed, as firms take cues from each other, and private equity finance suits for a share of a cut of the takings. The outcome? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump a country's own laws and the rulings made by elected bodies is that this stipulation has been inserted – without public consent, and often in conditions of total confidentiality – within international trade agreements.

A Concrete Instance: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The justice found that schemes to dig the first major coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no consequence on national carbon targets. The incoming administration subsequently revoked the permission the Tories had approved. Currently, this legal outcome is under threat by an secret arbitration panel answering to exclusively the corporations filing the suit.

During August, a corporate entity whose final controllers are located in the Cayman Islands lodged a claim against the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

The claimant is litigating against the UK for the money it would have generated if the mine had been allowed to commence operations. The public has no idea how much this could amount to. Who is representing it challenging the state? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The administration passes a law, the high court upholds it, then a overseas corporation disputes it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Case

On the same day that the tribunal on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case so far, but it is highly possible that he will utilise the arbitration process to contest the restrictions the UK imposed on him subsequent to the Russian aggression. He has already started suing Luxembourg on these grounds, claiming sixteen billion dollars: half that state's annual revenue. Part of the legal team acting for him in that case? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s delay in using frozen state funds as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the money Ukraine desperately needs.

Empty Promises and Growing Costs

We were assured that these scenarios were not possible. In 2014, a senior politician, advocating for the most significant and hazardous of all these agreements, declared: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” A consultant on this matter labelled activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations needed to fear such legal actions. Predictions that “as corporations begin to understand the influence they’ve been granted, they will turn their attention from the weak nations to the developed economies” were dismissed with widespread derision.

That threat has come to pass. Recently, energy and resource corporations have initiated a historic level of claims against nations across the economic spectrum, opposing – like the example of the UK mine – government attempts to stop global warming. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained the majority. That equates to the combined GDP