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How do you understand our democratic process operates? Perhaps something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills become law. Legislation are enforced by the courts. End of story. Well, that used to be how it used to work. Not anymore.

The Advent of Secret Courts

Nowadays, overseas companies, or the billionaires that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. The cases are held in secret. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. The door is open exclusively to businesses registered abroad.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

These awards represent not actual losses but funds the panel members conclude the company could potentially have made. The government could be forced to abandon its policy. It will be deterred from enacting future policies along the same lines, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as corporations take cues from each other, and investment funds bankroll lawsuits in return for a cut of the settlements. The result? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the choices enacted by legislatures is that this clause has been written – without democratic mandate, and often in an atmosphere of extreme secrecy – within international trade agreements.

A Specific Example: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The presiding officer found that plans to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine could have zero effect on our carbon budgets. The Labour government subsequently revoked the licence the Tories had issued. Today, this success could be compromised by an offshore tribunal reporting to no one but the entities filing the suit.

In August, a corporate entity whose ultimate owners are located in the offshore financial centre lodged a claim challenging the UK government. Last week a arbitration panel in Washington DC was established to consider the case.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to commence operations. We have no clear indication how much this sum represents. What legal team is acting on its behalf against the British government? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the national judiciary supports it, then a overseas corporation challenges it through an unaccountable private court, and a elected official represents its behalf.

The Russian Case

Simultaneously that the panel on the mining lawsuit was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the war in Ukraine. He has already filed a claim against a small nation for this reason, seeking sixteen billion dollars: an amount representing half state's annual revenue. Among the legal team acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized state funds as guarantee for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine urgently requires.

Empty Promises and Growing Costs

Politicians promised that these events wouldn’t happen. Previously, a government leader, championing the most significant and hazardous of all investment pacts, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” A consultant on this issue accused critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear these lawsuits. Warnings that “as corporations start to realise the authority bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That threat is now a reality. In the current period, energy and extraction companies have initiated a unprecedented number of cases against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – state efforts to prevent global warming. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP