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Can you perceive our democratic process works? Maybe something like this. We elect MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. That's it. Yet, that was how it once functioned. Not anymore.

The Rise of Secret Tribunals

Nowadays, overseas companies, or the oligarchs that control them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or legal review. The general public are barred from bringing a case to them, nor can our government, including businesses headquartered in this country. They are open only to entities registered abroad.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These awards constitute not tangible damages but money the arbitrators determine the company might otherwise have made. The state could be forced to abandon its policy. It will be discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms learn from each other, and hedge funds fund legal actions for a share of a share of the awards. The outcome? Democratic sovereignty and democracy are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override domestic law and the choices made by elected bodies is that this clause has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – into trade treaties.

A Real-World Example: The UK Coalmine

A year ago, activists won a great victory at the High Court. The justice determined that schemes to open the first major coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had approved. Now, this success faces being overturned by an secret arbitration panel accountable to only the entities petitioning it.

In August, a corporate entity whose ultimate owners reside in the Cayman Islands lodged a claim challenging the UK government. Recently a dispute settlement body in the United States was set up to hear it.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to proceed. We have little idea how much this sum represents. What legal team is serving as its counsel in opposition to the state? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

The Russian Case

On the same day that the court on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the restrictions the UK levied against him following the war in Ukraine. He has previously started suing Luxembourg on these grounds, seeking $16bn: half that state's yearly income. Part of the counsel representing him there? Cherie Blair, married to the ex-UK leader.

International law scholars contend that the EU’s hesitation in using frozen Russian assets as security for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over elected governments may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Escalating Costs

Politicians promised that such things wouldn’t happen. Previously, a government leader, promoting the largest and riskiest of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this topic labelled activists of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by such legal actions. Predictions that “when companies grasp the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were met with scepticism.

That warning has come to pass. Recently, fossil fuel and extraction companies have filed a unprecedented number of suits against nations rich and poor, contesting – similar to the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Companies have to date won vast sums via ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP