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How do you perceive our democratic process operates? Perhaps along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills become law. The law are enforced by the courts. Simple as that. Yet, that was how it operated in the past. Not anymore.

The Advent of Shadow Tribunals

Today, international firms, along with the wealthy individuals that control them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals staffed by business advocates. The cases take place behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies based in this country. The door is open solely for entities based overseas.

When a secret court determines that a legislative action could harm the corporation’s expected profits, it can award compensation of hundreds of millions, running into billions.

These sums are based not on actual losses but compensation the arbitrators conclude the company could potentially have made. The government might be compelled to drop the legislation. It is deterred from enacting future policies in that area, for fear of being sued.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and private equity fund legal actions in exchange for a cut of the settlements. The outcome? National sovereignty and democratic governance are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the rulings made by parliaments is that this clause has been written – without democratic mandate, and typically amid conditions of extreme secrecy – within bilateral investment treaties.

A Real-World Instance: The Whitehaven Coalmine

A year ago, a conservation group won a great victory at the high court. The judge determined that plans to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had endorsed the questionable argument that the mine would have zero effect on our carbon budgets. The incoming administration later cancelled the consent the previous administration had issued. Currently, this victory is under threat by an secret arbitration panel answering to only the entities bringing the case.

During August, a company whose final controllers are based in the tax haven filed a lawsuit versus the UK government. The previous week a tribunal in the United States was set up to hear it.

This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no idea how much this sum represents. What legal team is representing it in opposition to the British government? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a foreign company challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

A Sanctions Case

Simultaneously that the panel on the mining lawsuit was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the restrictions the UK levied against him following the Russian aggression. He has already initiated proceedings against another European state on these grounds, seeking sixteen billion dollars: an amount representing half state's annual revenue. Included in the lawyers representing him there? the wife of a former prime minister, married to the ex-UK leader.

International law scholars believe that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments could be blocking the finance Ukraine critically depends on.

False Assurances and Escalating Threats

The public was told that these scenarios could not occur. Years ago, a government leader, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and there has never been a case in the past.” An expert on this issue accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies start to realise the power they now possess, they will redirect their efforts from the poorer states to the strong ones” were greeted by scepticism.

That prediction has come to pass. In the current period, energy and extraction companies have lodged a historic level of cases against nations across the economic spectrum, contesting – like the example of the Whitehaven project – state efforts to stop global warming. Firms have so far won vast sums by using ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP