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Can you reckon our democratic process works? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills become law. Statutes is maintained by the courts. That's it. Yet, that’s how it once functioned. Those days are over.

The Rise of Secret Courts

Nowadays, foreign corporations, and the oligarchs that control them, can sue governments for the policies they pass, at private courts made up of corporate lawyers. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies grant no avenue for appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. Access is granted solely for businesses registered abroad.

Should an arbitration panel rules that a legislative action could harm the corporation’s expected profits, it can award damages of hundreds of millions, running into billions.

This compensation constitute not actual losses but money the tribunal officials determine the company could potentially have made. The government could be forced to drop the legislation. It is deterred from passing future laws in that area, for fear of being sued.

A System Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms observe each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The consequence? Sovereignty and democratic governance are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the choices enacted by elected bodies is that this clause has been incorporated – without democratic mandate, and often in a climate of extreme secrecy – inside international trade agreements.

A Specific Case: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The judge found that schemes to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine could have no consequence on our carbon budgets. The new government then withdrew the licence the Tories had issued. Now, this success could be compromised by an offshore tribunal answering to exclusively the companies petitioning it.

During August, a company whose final controllers are based in the tax haven initiated proceedings versus the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it could have earned if the mine had been allowed to proceed. Citizens have no idea how much this could amount to. What legal team is acting on its behalf challenging the UK administration? A member of parliament, and ex-law officer in the Conservative government, that great patriot the MP. The administration makes a decision, the domestic court validates it, then a international entity contests it through an secretive offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

Concurrently that the panel on the mining lawsuit was established, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case to date, but it seems likely that he’ll use the tribunal to fight the penalties the UK levied against him subsequent to the war in Ukraine. He has already started suing a small nation with similar intent, seeking $16bn: an amount representing half state's annual revenue. Included in the counsel on his side? Cherie Blair, married to the former British prime minister.

International law scholars contend that the EU’s procrastination in utilising seized state funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over sovereign states may be obstructing the finance Ukraine urgently requires.

Empty Promises and Escalating Costs

We were assured that these scenarios could not occur. Years ago, a government leader, promoting the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this topic accused activists of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “when companies grasp the power bestowed upon them, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That threat has come to pass. Recently, energy and extraction companies have lodged a unprecedented number of cases against nations across the economic spectrum, opposing – like the example of the Whitehaven project – official measures to stop environmental catastrophe. Firms have to date won $114bn through ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP