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How do you understand our democratic process works? Perhaps similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. End of story. However, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Tribunals

In the modern era, overseas companies, or the oligarchs who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals made up of business advocates. The cases take place behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, including businesses operating from this country. The door is open only to corporations registered abroad.

When a secret court rules that a government measure might diminish the corporation’s anticipated profits, it may order damages of vast sums, even billions.

This compensation are based not on tangible damages but money the panel members determine the company might otherwise have made. The government might be compelled to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A System Running Rampant

Record numbers of cases are being filed, as firms learn from each other, and private equity fund legal actions for a share of a share of the awards. The outcome? National sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the choices enacted by parliaments is that this provision has been inserted – absent public approval, and often in conditions of total confidentiality – inside bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

Last year, a conservation group achieved a major legal triumph at the senior court. The judge ruled that plans to open the first new deep coal mine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have had zero effect on national carbon targets. The incoming administration subsequently revoked the licence the Tories had approved. Currently, this victory is under threat by an secret arbitration panel reporting to only the corporations bringing the case.

In August, a firm whose beneficial owners reside in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a arbitration panel in the United States was set up to adjudicate on it.

The company is litigating against the UK for the profits it might have made if the mine had been permitted to go ahead. The public has no idea how much this sum represents. Who is representing it challenging the state? An elected representative, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary validates it, then a foreign company contests it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case at present, but it appears probable that he will utilise the tribunal to challenge the penalties the UK imposed on him subsequent to the Russian aggression. He has already filed a claim against Luxembourg with similar intent, claiming a colossal sum: an amount representing half government’s annual revenue. Included in the legal team acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

International law scholars contend that the EU’s delay in leveraging immobilised Russian assets as security for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine urgently requires.

Misleading Claims and Escalating Costs

Politicians promised that such things were not possible. Years ago, a government leader, advocating for the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this matter accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations begin to understand the power bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat is now a reality. Recently, oil and gas and resource corporations have lodged a unprecedented number of cases against nations rich and poor, challenging – like the example of the UK mine – government attempts to halt global warming. Companies have so far won vast sums via ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP