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What is your reckon our democratic process works? Perhaps similar to this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Advent of Offshore Courts

In the modern era, overseas companies, and the wealthy individuals that control them, are able to litigate against nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. Such disputes are held behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, or even companies operating from this country. They are open only to businesses based overseas.

When a secret court rules that a law or policy might diminish the corporation’s anticipated profits, it can award damages of vast sums, potentially billions.

These awards are based not on real financial harm but funds the arbitrators decide the company could potentially have made. The administration may have to rescind the measure. It is discouraged from introducing similar legislation along the same lines, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as firms take cues from each other, and investment funds finance suits in exchange for a portion of the takings. The result? Democratic sovereignty and popular rule are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the decisions enacted by parliaments is that this provision has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Specific Case: The UK Coal Mine

Twelve months ago, activists achieved a major legal triumph at the High Court. The presiding officer determined that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine could have no impact on climate commitments. The Labour government subsequently revoked the consent the Tories had granted. Currently, this victory is under threat by an foreign court answering to no one but the entities filing the suit.

During August, a company whose ultimate owners reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a dispute settlement body in the United States was set up to hear it.

The claimant is suing the UK for the profits it could have earned if the mine had received permission to commence operations. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel challenging the state? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot the MP. The government makes a decision, the national judiciary upholds it, then a foreign company contests it through an unaccountable arbitration panel, and a elected official represents its behalf.

The Russian Challenge

Concurrently that the court on the coalmine case was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the penalties the UK levied against him following the war in Ukraine. He has previously filed a claim against a small nation on these grounds, seeking $16bn: equivalent to half of government’s annual revenue. Part of the lawyers representing him there? the wife of a former prime minister, married to the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as collateral for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

False Assurances and Mounting Costs

We were assured that these events were not possible. In 2014, a former prime minister, advocating for the most significant and hazardous of all these agreements, declared: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this issue described critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states needed to fear such legal actions. Predictions that “once firms start to realise the influence bestowed upon them, they will shift their focus from the weak nations to the developed economies” were greeted by widespread derision.

That threat has come to pass. This year, fossil fuel and mining firms have lodged a record number of claims against nations across the economic spectrum, contesting – similar to the Whitehaven project – official measures to stop global warming. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP