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How do you reckon our democratic process operates? Maybe something like this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Tribunals

Nowadays, overseas companies, along with the wealthy individuals behind them, are able to litigate against governments for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes are held in secret. In contrast to domestic courts, these bodies provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even companies headquartered in this country. Access is granted only to businesses operating from foreign soil.

When a secret court determines that a law or policy could harm the corporation’s projected profits, it can award compensation of vast sums, even billions.

These sums constitute not tangible damages but compensation the arbitrators conclude the company could potentially have made. The state might be compelled to rescind the measure. It is hesitant to passing future laws of a similar nature, due to the risk of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms learn from each other, and investment funds fund legal actions for a share of a portion of the settlements. The consequence? Sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the choices enacted by elected bodies is that this clause has been inserted – without public consent, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Specific Instance: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer determined that schemes to excavate the first major coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had no impact on national carbon targets. The incoming administration later cancelled the licence the former government had approved. Currently, this legal outcome faces being overturned by an secret arbitration panel reporting to no one but the corporations bringing the case.

In August, a corporate entity whose beneficial owners are located in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in the United States was established to hear it.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to proceed. Citizens have no idea how much this sum represents. Which individual is representing it challenging the state? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The state makes a decision, the high court upholds it, then a overseas corporation challenges it through an secretive private court, and a member of our parliament works for its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case at present, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK enacted against him following the invasion of Ukraine. He has already filed a claim against another European state on these grounds, claiming sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the lawyers representing him there? the wife of a former prime minister, married to the previous PM.

Trade specialists argue that the EU’s delay in using frozen Russian assets as security for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

False Assurances and Escalating Threats

The public was told that these events were not possible. In 2014, a former prime minister, championing the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade deal after trade deal and we have never seen a problem in the past.” An adviser on this topic described critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Warnings that “as corporations start to realise the influence they now possess, they will redirect their efforts from the weak nations to the strong ones” were met with general mockery.

That prediction has now materialised. Recently, fossil fuel and resource corporations have filed a unprecedented number of claims against nations rich and poor, contesting – as in the case of the Cumbrian coalmine – government attempts to stop global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP