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How do you reckon our democratic process operates? Maybe along the lines of this. We elect MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Statutes are enforced by the courts. That's it. However, that’s how it once functioned. Those days are over.

The Advent of Offshore Tribunals

Nowadays, overseas companies, or the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at private courts made up of corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these panels grant no right of appeal or judicial review. The general public are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. Access is granted only to entities registered abroad.

When a secret court finds that a legislative action may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation represent not real financial harm but funds the panel members conclude the company would perhaps have made. The administration could be forced to drop the legislation. It will be deterred from passing future laws along the same lines, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being brought, as corporations learn from each other, and private equity finance suits for a share of a cut of the awards. The outcome? National sovereignty and democracy are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the decisions taken by parliaments is that this provision has been written – absent public approval, and typically amid conditions of total confidentiality – inside trade treaties.

A Real-World Instance: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the high court. The justice determined that proposals to open the first deep coalmine in the UK for three decades, in northwest England, were wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have no consequence on national carbon targets. The incoming administration subsequently revoked the consent the previous administration had granted. Currently, this victory is under threat by an offshore tribunal accountable to only the entities bringing the case.

Last August, a company whose beneficial owners reside in the Cayman Islands lodged a claim versus the UK government. Last week a dispute settlement body in the United States was set up to consider the case.

The company is litigating against the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have no idea how much this could amount to. Which individual is representing it in opposition to the UK administration? An elected representative, and ex-law officer in the outgoing administration, that great patriot the MP. The government passes a law, the national judiciary upholds it, then a foreign company disputes it through an secretive private court, and a elected official works for its behalf.

A Sanctions Case

Simultaneously that the court on the coalmine case was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case so far, but it seems likely that he may employ the tribunal to challenge the sanctions the UK imposed on him after the invasion of Ukraine. He has previously initiated proceedings against a small nation with similar intent, claiming a colossal sum: an amount representing half government’s yearly income. Included in the counsel on his side? a prominent lawyer, wife of the previous PM.

Trade specialists argue that the EU’s procrastination in using frozen oligarchs' funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over elected governments might be preventing the funds Ukraine urgently requires.

Misleading Claims and Escalating Risks

We were assured that these events could not occur. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, stated: “Britain has agreed to trade deal after trade deal and there has not been a issue in the past.” A consultant on this issue accused activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies grasp the authority bestowed upon them, they will turn their attention from the poorer states to the strong ones” were greeted by scepticism.

That prediction has now materialised. In the current period, fossil fuel and extraction companies have lodged a record number of claims against nations rich and poor, contesting – similar to the Cumbrian coalmine – official measures to halt global warming. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP