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How do you reckon our democratic process operates? Maybe along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills become law. The law is maintained by the courts. That's it. Well, that was how it once functioned. Not anymore.

The Emergence of Shadow Tribunals

Nowadays, foreign corporations, and the oligarchs who own them, are able to litigate against nation states for the regulations they pass, at offshore tribunals staffed by commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these panels allow no opportunity to appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. The door is open only to entities registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

This compensation are based not on actual losses but money the tribunal officials conclude the company might otherwise have made. The government could be forced to abandon its policy. It will be discouraged from passing future laws in that area, due to the risk of facing litigation.

A System Running Rampant

Record numbers of cases are being filed, as corporations take cues from each other, and hedge funds fund legal actions for a share of a portion of the awards. The outcome? Democratic sovereignty and democratic governance are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the rulings taken by legislatures is that this clause has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – within bilateral investment treaties.

A Specific Example: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the High Court. The presiding officer found that schemes to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no impact on national carbon targets. The new government then withdrew the permission the previous administration had granted. Today, this legal outcome could be compromised by an foreign court answering to only the companies petitioning it.

During August, a company whose beneficial owners are based in the offshore financial centre initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was set up to hear it.

The company is litigating against the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has little idea how much this could amount to. Which individual is acting on its behalf in opposition to the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a foreign company challenges it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the mining lawsuit was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows little of the case at present, but it seems likely that he may employ the arbitration process to contest the penalties the UK enacted against him after the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, claiming $16bn: equivalent to half of government’s yearly budget. Among the lawyers representing him there? a prominent lawyer, married to the former British prime minister.

Legal experts argue that the EU’s delay in utilising seized Russian assets as guarantee for its financial support package stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states may be obstructing the finance Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that these events could not occur. Previously, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” An expert on this matter accused activists of “scaremongering … the truth 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. Predictions that “when companies begin to understand the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has come to pass. Recently, oil and gas and mining firms have initiated a record number of claims against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – official measures to halt global warming. Corporations have to date won vast sums by using ISDS, of which oil majors have been awarded the majority. That represents the combined GDP