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How do you perceive our democratic process functions? It could be along the lines of this. The public votes for MPs. They vote on bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. Simple as that. However, that used to be how it used to work. Not anymore.

The Emergence of Shadow Courts

In the modern era, international firms, along with the oligarchs that control them, have the power to sue nation states for the policies they pass, at private courts staffed by commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these tribunals provide no avenue for appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even enterprises operating from this country. The door is open only to entities based overseas.

If a tribunal determines that a government measure could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, running into billions.

This compensation constitute not tangible damages but funds the panel members determine the company might otherwise have made. The government could be forced to rescind the measure. It is hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being initiated, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the settlements. The result? Democratic sovereignty and democratic governance are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the choices taken by parliaments is that this clause has been written – without democratic mandate, and typically amid a climate of profound opacity – inside international trade agreements.

A Concrete Instance: The Cumbrian Coal Mine

Last year, a conservation group won a great victory at the high court. The justice found that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, were illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine would have had zero effect on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had issued. Now, this legal outcome is under threat by an secret arbitration panel answering to no one but the companies filing the suit.

Last August, a corporate entity whose final controllers are located in the Cayman Islands initiated proceedings challenging the UK government. Last week a arbitration panel in Washington DC was set up to adjudicate on it.

The claimant is litigating against the UK for the money it might have made if the mine had received permission to go ahead. The public has no idea how much this sum represents. Which individual is acting on its behalf in opposition to the UK administration? An elected representative, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The state enacts a policy, the high court validates it, then a foreign company contests it through an unaccountable private court, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the panel on the coalmine case was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know nothing of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the penalties the UK enacted against him subsequent to the Russian aggression. He has filed a claim against another European state on these grounds, seeking $16bn: an amount representing half state's yearly budget. Among the legal team acting for him in that case? a prominent lawyer, wife of the previous PM.

International law scholars argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over elected governments might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Threats

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, advocating for the most significant and hazardous of all such treaties, declared: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this matter described campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear these lawsuits. Warnings that “when companies begin to understand the influence they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were dismissed with widespread derision.

That threat has come to pass. This year, fossil fuel and resource corporations have lodged a historic level of claims against nations rich and poor, opposing – as in the case of the Whitehaven project – government attempts to stop global warming. Corporations have thus far won $114bn by using ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP