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How do you reckon our democratic process operates? Maybe similar to this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills become law. The law is upheld by the courts. That's it. Yet, that’s how it once functioned. Not anymore.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, along with the wealthy individuals who own them, can sue governments for the laws they pass, at offshore tribunals composed of commercial attorneys. The cases are held behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, including enterprises based in this country. The door is open exclusively to entities operating from foreign soil.

If a tribunal finds that a legislative action may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These sums represent not tangible damages but compensation the tribunal officials decide the company might otherwise have made. The administration could be forced to drop the legislation. It will be hesitant to enacting future policies in that area, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of legal actions are being filed, as companies observe each other, and investment funds finance suits in return for a portion of the settlements. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the rulings made by legislatures is that this clause has been inserted – without public consent, and frequently under conditions of profound opacity – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The justice determined that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have zero effect on national carbon targets. The new government subsequently revoked the licence the former government had approved. Now, this success could be compromised by an offshore tribunal accountable to exclusively the companies petitioning it.

In August, a company whose ultimate owners reside in the tax haven lodged a claim against the UK government. The previous week a arbitration panel in Washington DC was established to hear it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. We have little idea how much this might be. Who is serving as its counsel against the state? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot the MP. The government makes a decision, the domestic court validates it, then a international entity contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the court on the mining lawsuit was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know nothing of the case so far, but it seems likely that he may employ the arbitration process to fight the sanctions the UK imposed on him following the invasion of Ukraine. He has previously filed a claim against Luxembourg with similar intent, seeking a colossal sum: half that nation's yearly budget. Among the lawyers acting for him in that case? a prominent lawyer, wife of the previous PM.

Legal experts argue that the EU’s delay in using frozen oligarchs' funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Growing Threats

The public was told that such things could not occur. In 2014, a former prime minister, promoting the biggest and most dangerous of all such treaties, stated: “The UK has signed investment treaty upon trade deal and there has not been a problem in the past.” An expert on this topic labelled campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies start to realise the influence they’ve been granted, they will shift their focus from the weak nations to the strong ones” were greeted by general mockery.

That warning is now a reality. This year, energy and resource corporations have filed a historic level of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to prevent environmental catastrophe. Firms have to date won vast sums by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP