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How do you perceive our democratic process functions? Perhaps similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills become law. Statutes is upheld by the courts. End of story. Well, that was how it once functioned. No longer.

The Advent of Shadow Tribunals

Nowadays, overseas companies, and the wealthy individuals who own them, have the power to sue elected administrations for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings are held in secret. Unlike our courts, these panels provide no right of appeal or judicial review. You or I are barred from bringing a case to them, just as our government, or even businesses operating from this country. They are open solely for corporations registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s projected profits, it may order damages of hundreds of millions, even billions.

These awards represent not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The state could be forced to rescind the measure. It will be discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of cases are being brought, as firms observe each other, and investment funds bankroll lawsuits for a share of a cut of the awards. The result? National sovereignty and democracy are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the choices enacted by elected bodies is that this provision has been inserted – absent public approval, and frequently under conditions of extreme secrecy – into international trade agreements.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the High Court. The judge ruled that proposals to excavate the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The Labour government subsequently revoked the permission the previous administration had granted. Today, this legal outcome could be compromised by an foreign court answering to only the corporations bringing the case.

Last August, a corporate entity whose ultimate owners are located in the offshore financial centre filed a lawsuit against the UK government. The previous week a arbitration panel in the United States was established to consider the case.

The company is seeking compensation from the UK for the profits it might have made if the mine had been permitted to commence operations. The public has no idea how much this could amount to. Which individual is acting on its behalf challenging the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a foreign company contests it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to challenge the penalties the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, demanding a colossal sum: half that government’s yearly income. Among the counsel representing him there? a prominent lawyer, married to the former British prime minister.

Trade specialists contend that the EU’s procrastination in using frozen Russian assets as collateral for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

Empty Promises and Mounting Risks

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, advocating for the most significant and hazardous of all these agreements, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this issue described critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations should be concerned by such legal actions. Warnings that “as corporations start to realise the influence bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were dismissed with scepticism.

That threat has come to pass. In the current period, oil and gas and mining firms have filed a record number of claims against nations rich and poor, challenging – like the example of the Whitehaven project – official measures to prevent global warming. Corporations have so far won $114bn by using ISDS, of which energy giants have secured $84bn. That represents the combined GDP