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How do you reckon our democratic process functions? Perhaps similar to this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills pass into law. Statutes is upheld by the courts. That's it. Well, that used to be how it once functioned. Not anymore.

The Emergence of Shadow Courts

In the modern era, international firms, and the oligarchs behind them, have the power to sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies grant no avenue for appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even enterprises based in this country. The door is open exclusively to entities registered abroad.

When a secret court determines that a law or policy could harm the corporation’s expected profits, it can award damages of hundreds of millions, potentially billions.

These sums represent not real financial harm but compensation the panel members determine the company would perhaps have made. The administration might be compelled to drop the legislation. It becomes discouraged from passing future laws along the same lines, due to the risk of being sued.

A System Running Rampant

Unprecedented levels of cases are being filed, as companies take cues from each other, and hedge funds bankroll lawsuits in return for a share of the awards. The consequence? National sovereignty and popular rule are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the decisions taken by legislatures is that this provision has been incorporated – without democratic mandate, and frequently under conditions of profound opacity – within trade treaties.

A Concrete Instance: The Whitehaven Coalmine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer found that proposals to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The new government then withdrew the licence the former government had granted. Today, this success is under threat by an secret arbitration panel reporting to only the companies bringing the case.

In August, a company whose final controllers are based in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a arbitration panel in the US capital was established to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has no clear indication how much this might be. Which individual is representing it challenging the state? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The administration makes a decision, the high court upholds it, then a international entity disputes it through an undemocratic private court, and a elected official works for its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know little of the case so far, but it seems likely that he may employ the tribunal to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, demanding a colossal sum: an amount representing half nation's yearly income. Included in the lawyers acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists believe that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Mounting Costs

Politicians promised that such things could not occur. In 2014, a senior politician, championing the most significant and hazardous of all investment pacts, stated: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” A consultant on this matter described campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Warnings that “once firms start to realise the power they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by general mockery.

That threat is now a reality. In the current period, energy and resource corporations have filed a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – government attempts to prevent climate breakdown. Companies have thus far won vast sums through ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP