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What is your understand our democratic process operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. End of story. Yet, that’s how it used to work. Those days are over.

The Advent of Secret Tribunals

Nowadays, overseas companies, or the oligarchs behind them, are able to litigate against governments for the policies they pass, at offshore tribunals made up of business advocates. These proceedings are held behind closed doors. Differing from national judiciaries, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. They are open exclusively to businesses based overseas.

Should an arbitration panel finds that a government measure may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These awards are based not on tangible damages but funds the tribunal officials determine the company could potentially have made. The state might be compelled to drop the legislation. It will be discouraged from introducing similar legislation in that area, due to the risk of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being brought, as companies observe each other, and hedge funds finance suits for a share of a share of the takings. The outcome? National sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the decisions made by parliaments is that this stipulation has been incorporated – absent public approval, and typically amid an atmosphere of total confidentiality – into bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer ruled that plans to dig the first deep coalmine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine could have no consequence on our carbon budgets. The incoming administration then withdrew the permission the Tories had approved. Now, this victory faces being overturned by an foreign court answering to only the companies filing the suit.

During August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. The previous week a arbitration panel in Washington DC was convened to consider the case.

The claimant is litigating against the UK for the profits it would have generated if the mine had received permission to proceed. The public has little idea how much this sum represents. Who is representing it against the British government? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a international entity disputes it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Concurrently that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case so far, but it seems likely that he’ll use the tribunal to fight the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has filed a claim against another European state with similar intent, seeking a colossal sum: equivalent to half of state's yearly budget. Part of the lawyers acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Legal experts believe that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, undemocratic power over sovereign states could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Risks

The public was told that these scenarios wouldn’t happen. Previously, a government leader, advocating for the largest and riskiest of all such treaties, declared: “The UK has signed trade agreement after trade deal and we have never seen a problem in the past.” A consultant on this matter accused activists of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms start to realise the influence they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction has come to pass. In the current period, fossil fuel and mining firms have initiated a historic level of claims against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – state efforts to stop global warming. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP