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What is your reckon our democratic process works? It could be something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills pass into law. Legislation is maintained by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Advent of Shadow Tribunals

In the modern era, international firms, and the oligarchs who own them, have the power to sue governments for the regulations they pass, at offshore tribunals composed of corporate lawyers. These proceedings are held in secret. In contrast to domestic courts, these bodies allow no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even enterprises operating from this country. The door is open only to entities based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation are based not on actual losses but compensation the panel members decide the company could potentially have made. The government may have to rescind the measure. It becomes discouraged from passing future laws of a similar nature, for fear of being sued.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as firms observe each other, and hedge funds finance suits in exchange for a cut of the awards. The outcome? National sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the decisions taken by elected bodies is that this clause has been incorporated – absent public approval, and typically amid a climate of profound opacity – inside trade treaties.

A Specific Example: The UK Coalmine

A year ago, activists secured a significant win at the high court. The presiding officer found that schemes to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine would have zero effect on our carbon budgets. The new government then withdrew the licence the Tories had approved. Today, this success could be compromised by an secret arbitration panel reporting to exclusively the entities petitioning it.

Last August, a company whose ultimate owners are located in the Cayman Islands initiated proceedings versus the UK government. The previous week a dispute settlement body in the United States was convened to hear it.

This firm is seeking compensation from the UK for the money it might have made if the mine had been allowed to go ahead. Citizens have no clear indication how much this might be. What legal team is serving as its counsel against the British government? An elected representative, and ex-law officer in the previous government, the noted patriot the MP. The government passes a law, the national judiciary validates it, then a foreign company challenges it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the coalmine case was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it seems likely that he will utilise the tribunal to fight the restrictions the UK enacted against him subsequent to the Russian aggression. He has already initiated proceedings against another European state on these grounds, demanding sixteen billion dollars: equivalent to half of state's yearly budget. Part of the lawyers representing him there? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in using frozen Russian assets as security for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments may be obstructing the finance Ukraine critically depends on.

Empty Promises and Escalating Threats

We were assured that such things could not occur. Previously, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” An expert on this topic accused critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear such legal actions. Predictions that “once firms grasp the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with scepticism.

That warning is now a reality. Recently, fossil fuel and mining firms have lodged a unprecedented number of suits against nations both wealthy and developing, opposing – like the example of the UK mine – government attempts to halt global warming. Companies have thus far won $114bn through ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP