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Can you perceive our democratic process functions? Perhaps along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. End of story. Yet, that’s how it used to work. No longer.

The Emergence of Shadow Tribunals

Nowadays, foreign corporations, or the billionaires behind them, can sue nation states for the laws they pass, at offshore tribunals staffed by business advocates. The cases take place in secret. Differing from national judiciaries, these panels provide no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, including businesses based in this country. They are open exclusively to businesses operating from foreign soil.

When a secret court determines that a legislative action could harm the corporation’s anticipated profits, it may order financial penalties of vast sums, running into billions.

These sums represent not real financial harm but money the tribunal officials conclude the company might otherwise have made. The administration could be forced to abandon its policy. It is deterred from enacting future policies in that area, for fear of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being brought, as firms observe each other, and hedge funds fund legal actions in exchange for a portion of the takings. The consequence? Sovereignty and democracy are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the rulings enacted by parliaments is that this provision has been incorporated – without democratic mandate, and often in a climate of total confidentiality – inside international trade agreements.

A Specific Instance: The Whitehaven Coal Mine

A year ago, activists won a great victory at the High Court. The judge determined that proposals to open the first major coal mine in the UK for a generation, in northwest England, were wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The Labour government subsequently revoked the licence the former government had granted. Today, this legal outcome could be compromised by an secret arbitration panel answering to no one but the companies bringing the case.

Last August, a corporate entity whose ultimate owners reside in the tax haven initiated proceedings against the UK government. Recently a dispute settlement body in the US capital was established to consider the case.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to go ahead. The public has no clear indication how much this might be. Who is acting on its behalf challenging the UK administration? An elected representative, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The government enacts a policy, the domestic court supports it, then a international entity disputes it through an secretive private court, and a elected official acts on its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it seems likely that he will utilise the ISDS mechanism to challenge the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has started suing another European state for this reason, demanding a colossal sum: half that state's annual revenue. Among the counsel on his side? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its financial support package stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that such things could not occur. Previously, a senior politician, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade agreement upon trade deal and there has not been a case in the past.” An adviser on this matter labelled critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries needed to fear such legal actions. Predictions that “when companies begin to understand the authority bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were greeted by widespread derision.

That warning has now materialised. In the current period, oil and gas and extraction companies have lodged a historic level of suits against nations both wealthy and developing, challenging – as in the case of the UK mine – government attempts to halt environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP