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How do you reckon our democratic process operates? Perhaps something like this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Emergence of Shadow Tribunals

In the modern era, overseas companies, or the billionaires who own them, can sue governments for the policies they pass, at private courts staffed by commercial attorneys. The cases take place behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, including businesses operating from this country. They are open exclusively to corporations based overseas.

Should an arbitration panel rules that a law or policy may compromise the corporation’s projected profits, it may order financial penalties of vast sums, potentially billions.

These awards are based not on real financial harm but money the tribunal officials conclude the company would perhaps have made. The administration could be forced to rescind the measure. It is deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being brought, as companies take cues from each other, and investment funds bankroll lawsuits in return for a share of the settlements. The outcome? Sovereignty and popular rule are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the rulings taken by parliaments is that this stipulation has been incorporated – without public consent, and frequently under conditions of total confidentiality – inside international trade agreements.

A Concrete Case: The UK Coal Mine

Last year, a conservation group secured a significant win at the high court. The judge found that plans to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The Labour government then withdrew the consent the Tories had approved. Now, this victory is under threat by an offshore tribunal reporting to only the entities petitioning it.

During August, a company whose ultimate owners are based in the offshore financial centre lodged a claim against the UK government. Recently a dispute settlement body in Washington DC was set up to consider the case.

The company is litigating against the UK for the money it might have made if the mine had been allowed to go ahead. The public has little idea how much this sum represents. What legal team is representing it in opposition to the state? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the high court upholds it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coalmine case was appointed, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case at present, but it appears probable that he may employ the ISDS mechanism to challenge the penalties the UK imposed on him following the war in Ukraine. He has previously started suing another European state for this reason, seeking $16bn: equivalent to half of state's yearly budget. Included in the legal team representing him there? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations may be obstructing the money Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that these events could not occur. Years ago, a government leader, advocating for the most significant and hazardous of all such treaties, stated: “The UK has signed trade deal upon trade deal and there has never been a case in the past.” An adviser on this topic accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Warnings that “once firms start to realise the authority bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were dismissed with general mockery.

That warning is now a reality. In the current period, energy and mining firms have initiated a unprecedented number of cases against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – state efforts to stop environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured the majority. That represents the combined GDP