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What is your reckon our democratic process operates? Maybe something like this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills become law. Legislation are enforced by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, or the oligarchs that control them, have the power to sue governments for the regulations they pass, at private courts made up of commercial attorneys. Such disputes take place in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or legal review. You or I are unable to file a case to them, just as our government, including enterprises headquartered in this country. Access is granted exclusively to corporations based overseas.

When a secret court determines that a law or policy could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation constitute not tangible damages but money the panel members determine the company might otherwise have made. The government may have to drop the legislation. It will be deterred from enacting future policies of a similar nature, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Historically high figures of cases are being brought, as firms take cues from each other, and investment funds fund legal actions in exchange for a share of the settlements. The result? Democratic sovereignty and democratic governance are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the decisions enacted by parliaments is that this clause has been incorporated – absent public approval, and frequently under conditions of profound opacity – into international trade agreements.

A Real-World Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that proposals to open the first new deep coal mine in the UK for a generation, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect on our carbon budgets. The incoming administration then withdrew the consent the Tories had issued. Now, this victory could be compromised by an foreign court answering to no one but the companies petitioning it.

Last August, a firm whose beneficial owners are based in the tax haven initiated proceedings against the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

This firm is suing the UK for the revenue it could have earned if the mine had been permitted to proceed. Citizens have no clear indication how much this could amount to. Which individual is acting on its behalf against the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a foreign company contests it through an undemocratic private court, and a member of our parliament acts on its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coalmine case was appointed, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to challenge the penalties the UK enacted against him following the invasion of Ukraine. He has started suing Luxembourg for this reason, demanding $16bn: half that state's yearly income. Part of the lawyers on his side? a prominent lawyer, married to the previous PM.

Legal experts contend that the EU’s hesitation in utilising seized state funds as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that these events were not possible. Years ago, a senior politician, promoting the largest and riskiest of all such treaties, stated: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” An adviser on this topic labelled critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations grasp the power they’ve been granted, they will turn their attention from the poorer states to the developed economies” were greeted by general mockery.

That prediction has come to pass. This year, fossil fuel and resource corporations have lodged a record number of suits against nations rich and poor, opposing – similar to the Whitehaven project – official measures to halt global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP