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How do you reckon our democratic process operates? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Statutes are enforced by the courts. End of story. However, that was how it used to work. Not anymore.

The Emergence of Secret Tribunals

In the modern era, overseas companies, along with the oligarchs who own them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals staffed by business advocates. The cases are conducted behind closed doors. Unlike our courts, these panels grant no opportunity to appeal or legal review. The general public cannot take a case to them, nor can our government, or even businesses operating from this country. They are open solely for entities registered abroad.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it may order damages of vast sums, even billions.

These awards are based not on real financial harm but funds the panel members conclude the company might otherwise have made. The government may have to rescind the measure. It will be deterred from passing future laws along the same lines, for fear of being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as firms observe each other, and private equity bankroll lawsuits for a share of a portion of the takings. The consequence? Democratic sovereignty and democracy are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the rulings made by elected bodies is that this stipulation has been written – without democratic mandate, and frequently under an atmosphere of total confidentiality – inside international trade agreements.

A Specific Example: The Cumbrian Coal Mine

A year ago, a conservation group won a great victory at the high court. The judge ruled that schemes to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have no consequence on national carbon targets. The Labour government subsequently revoked the consent the Tories had granted. Currently, this success faces being overturned by an foreign court reporting to exclusively the entities filing the suit.

During August, a company whose beneficial owners are based in the tax haven filed a lawsuit challenging the UK government. Recently a tribunal in the United States was established to consider the case.

The claimant is litigating against the UK for the money it could have earned if the mine had been permitted to proceed. Citizens have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the UK administration? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court upholds it, then a foreign company contests it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the court on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case to date, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK levied against him after the invasion of Ukraine. He has previously filed a claim against a small nation on these grounds, claiming sixteen billion dollars: half that government’s yearly income. Among the legal team representing him there? the wife of a former prime minister, married to the former British prime minister.

Trade specialists contend that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

Misleading Claims and Growing Risks

We were assured that these scenarios wouldn’t happen. Years ago, a senior politician, championing the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and we have never seen a problem in the past.” An expert on this matter accused campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations needed to fear these lawsuits. Predictions that “once firms start to realise the power they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That threat has now materialised. This year, oil and gas and resource corporations have initiated a unprecedented number of cases against nations rich and poor, contesting – similar to the Whitehaven project – government attempts to halt global warming. Corporations have so far won $114bn via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP