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How do you reckon our democratic process works? Maybe along the lines of this. The public votes for MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation is maintained by the courts. Simple as that. However, that used to be how it operated in the past. Those days are over.

The Advent of Secret Courts

In the modern era, international firms, and the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of commercial attorneys. These proceedings are held away from public scrutiny. Differing from national judiciaries, these tribunals grant no opportunity to appeal or legal review. The general public are unable to file a case to them, just as our government, or even businesses operating from this country. They are open only to businesses registered abroad.

When a secret court finds that a legislative action might diminish the corporation’s anticipated profits, it can award financial penalties of vast sums, running into billions.

These awards constitute not tangible damages but compensation the panel members conclude the company might otherwise have made. The state may have to abandon its policy. It becomes discouraged from passing future laws along the same lines, worried about incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of cases are being initiated, as firms take cues from each other, and hedge funds fund legal actions in return for a portion of the takings. The outcome? Democratic sovereignty and democracy are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the choices made by legislatures is that this stipulation has been inserted – without democratic mandate, and frequently under a climate of total confidentiality – into international trade agreements.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The presiding officer ruled that plans to dig the first major coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine would have no impact on climate commitments. The new government later cancelled the permission the Tories had granted. Today, this legal outcome faces being overturned by an foreign court accountable to only the entities petitioning it.

In August, a company whose ultimate owners are located in the offshore financial centre initiated proceedings against the UK government. Last week a tribunal in the United States was established to hear it.

The claimant is suing the UK for the profits it might have made if the mine had been allowed to go ahead. The public has no idea how much this could amount to. Which individual is serving as its counsel in opposition to the British government? An elected representative, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The state enacts a policy, the high court supports it, then a foreign company disputes it through an unaccountable private court, and a member of our parliament works for its behalf.

The Russian Case

Concurrently that the tribunal on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case so far, but it seems likely that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him following the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, claiming sixteen billion dollars: half that nation's annual revenue. Included in the counsel on his side? the wife of a former prime minister, married to the previous PM.

International law scholars believe that the EU’s hesitation in using frozen Russian assets as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that such things could not occur. In 2014, a senior politician, advocating for the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade deal upon trade deal and there has never been a problem in the past.” An adviser on this issue labelled critics of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries needed to fear ISDS claims. Predictions that “when companies begin to understand the authority they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were dismissed with scepticism.

That threat has now materialised. This year, fossil fuel and extraction companies have initiated a record number of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – state efforts to prevent global warming. Firms have to date won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP