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Can you reckon our democratic process operates? It could be along the lines of this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. The law are enforced by the courts. Simple as that. Yet, that’s how it operated in the past. Not anymore.

The Rise of Secret Tribunals

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against governments for the regulations they pass, at offshore tribunals composed of corporate lawyers. Such disputes take place in secret. Unlike our courts, these bodies allow no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, or even businesses based in this country. Access is granted only to entities registered abroad.

Should an arbitration panel finds that a government measure might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, running into billions.

These sums represent not tangible damages but compensation the tribunal officials decide the company could potentially have made. The administration may have to drop the legislation. It becomes hesitant to passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as firms take cues from each other, and investment funds finance suits in exchange for a cut of the settlements. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices made by legislatures is that this stipulation has been inserted – without public consent, and often in a climate of profound opacity – into bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Twelve months ago, activists secured a significant win at the High Court. The presiding officer found that schemes to dig the first major coal mine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine could have no consequence on our carbon budgets. The Labour government then withdrew the licence the previous administration had approved. Currently, this victory faces being overturned by an offshore tribunal reporting to no one but the companies filing the suit.

During August, a firm whose final controllers are based in the tax haven initiated proceedings challenging the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

The company is litigating against the UK for the money it could have earned if the mine had been permitted to go ahead. The public has no clear indication how much this might be. Which individual is representing it in opposition to the state? A sitting MP, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a overseas corporation disputes it through an secretive arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

On the same day that the court on the mining lawsuit was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he will utilise the arbitration process to challenge the restrictions the UK imposed on him subsequent to the Russian aggression. He has filed a claim against another European state with similar intent, claiming $16bn: equivalent to half of government’s yearly income. Among the counsel representing him there? Cherie Blair, married to the previous PM.

Trade specialists argue that the EU’s hesitation in using frozen oligarchs' funds as security for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Escalating Costs

Politicians promised that these scenarios wouldn’t happen. Previously, a senior politician, promoting the largest and riskiest of all investment pacts, declared: “We’ve signed trade agreement upon trade deal and we have never seen a problem in the past.” An expert on this topic accused activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations had to worry about such legal actions. Predictions that “when companies start to realise the influence they now possess, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That prediction has now materialised. In the current period, oil and gas and extraction companies have initiated a historic level of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP