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How do you perceive our democratic process works? It could be along the lines of this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills become law. Legislation is maintained by the courts. That's it. Yet, that used to be how it once functioned. Those days are over.

The Advent of Offshore Tribunals

In the modern era, overseas companies, or the wealthy individuals that control them, can sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. These proceedings are held behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or judicial review. You or I cannot take a case to them, nor can our government, including companies operating from this country. The door is open solely for corporations registered abroad.

When a secret court finds that a legislative action may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions, even billions.

These sums are based not on actual losses but compensation the panel members decide the company could potentially have made. The state could be forced to rescind the measure. It is deterred from introducing similar legislation of a similar nature, for fear of being sued.

A Mechanism Running Rampant

Record numbers of disputes are being filed, as companies take cues from each other, and private equity finance suits in exchange for a cut of the awards. The consequence? Sovereignty and popular rule are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings made by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of profound opacity – into international trade agreements.

A Specific Example: The Whitehaven Coal Mine

Last year, environmental campaigners 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, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had accepted the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration subsequently revoked the permission the Tories had issued. Now, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the companies filing the suit.

Last August, a corporate entity whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. Last week a tribunal in the United States was established to hear it.

The company is litigating against the UK for the money it might have made if the mine had received permission to commence operations. We have no clear indication how much this might be. Which individual is acting on its behalf challenging the state? A sitting MP, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The government enacts a policy, the high court upholds it, then a foreign company contests it through an secretive private court, and a sitting MP acts on its behalf.

A Sanctions Case

Concurrently that the court on the mining lawsuit was established, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the restrictions the UK levied against him after the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of government’s yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen oligarchs' funds as security for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over sovereign states might be preventing the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that these events could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An expert on this matter described critics of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “once firms begin to understand the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by widespread derision.

That warning has come to pass. This year, fossil fuel and resource corporations have filed a record number of suits against nations across the economic spectrum, opposing – as in the case of the UK mine – government attempts to prevent global warming. Corporations have to date won vast sums through ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP