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How do you perceive our democratic process functions? Maybe something like this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills become law. The law are enforced by the courts. Simple as that. However, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Courts

In the modern era, overseas companies, along with the billionaires behind them, have the power to sue governments for the regulations they pass, at offshore tribunals made up of business advocates. The cases take place behind closed doors. Differing from national judiciaries, these tribunals grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies operating from this country. Access is granted solely for businesses registered abroad.

When a secret court finds that a government measure might diminish the corporation’s projected profits, it can award compensation of vast sums, even billions.

These sums are based not on tangible damages but funds the panel members determine the company might otherwise have made. The government could be forced to drop the legislation. It is deterred from enacting future policies of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being filed, as firms observe each other, and private equity bankroll lawsuits in return for a cut of the settlements. The outcome? Democratic sovereignty and democracy are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the choices made by elected bodies is that this provision has been incorporated – absent public approval, and frequently under conditions of profound opacity – inside trade treaties.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, environmental campaigners won a great victory at the High Court. The judge ruled that schemes to dig the first deep coalmine in the UK for three decades, in Cumbria, were illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine could have no impact on climate commitments. The Labour government subsequently revoked the licence the previous administration had issued. Now, this legal outcome faces being overturned by an offshore tribunal reporting to only the entities filing the suit.

Last August, a firm whose final controllers are located in the offshore financial centre filed a lawsuit challenging the UK government. Last week a arbitration panel in Washington DC was set up to consider the case.

The claimant is litigating against the UK for the profits it could have earned if the mine had been permitted to commence operations. The public has no clear indication how much this sum represents. What legal team is representing it against the British government? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the domestic court supports it, then a overseas corporation contests it through an secretive private court, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the court on the coalmine case was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case to date, but it appears probable that he’ll use the arbitration process to contest the sanctions the UK levied against him following the invasion of Ukraine. He has already started suing a small nation for this reason, seeking a colossal sum: an amount representing half state's yearly budget. Part of the counsel on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that such things wouldn’t happen. Previously, a government leader, championing the biggest and most dangerous of all such treaties, told us: “Britain has agreed to trade deal after trade deal and there has not been a problem in the past.” An expert on this issue labelled activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations should be concerned by ISDS claims. Warnings that “as corporations grasp the power they’ve been granted, they will turn their attention from the weak nations to the strong ones” were dismissed with widespread derision.

That threat is now a reality. Recently, oil and gas and mining firms have filed a historic level of cases against nations both wealthy and developing, contesting – similar to the UK mine – official measures to halt climate breakdown. Companies have so far won $114bn through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP