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Can you understand our democratic process functions? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. Those days are over.

The Advent of Shadow Tribunals

In the modern era, overseas companies, and the wealthy individuals behind them, are able to litigate against nation states for the policies they pass, at offshore tribunals composed of business advocates. The cases are conducted in secret. Differing from national judiciaries, these tribunals allow no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, or even companies based in this country. Access is granted exclusively to entities based overseas.

When a secret court determines that a government measure might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions, even billions.

This compensation represent not real financial harm but compensation the panel members conclude the company might otherwise have made. The administration could be forced to drop the legislation. It will be hesitant to passing future laws along the same lines, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being brought, as firms learn from each other, and hedge funds finance suits for a share of a share of the settlements. The outcome? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the rulings made by legislatures is that this stipulation has been written – without democratic mandate, and frequently under a climate of profound opacity – into international trade agreements.

A Concrete Instance: The UK Coalmine

Last year, activists achieved a major legal triumph at the senior court. The presiding officer ruled that proposals to excavate the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on climate commitments. The incoming administration then withdrew the consent the previous administration had granted. Now, this legal outcome could be compromised by an foreign court reporting to exclusively the entities filing the suit.

During August, a corporate entity whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. The previous week a arbitration panel in the US capital was convened to adjudicate on it.

The claimant is litigating against the UK for the revenue it might have made if the mine had received permission to go ahead. The public has no clear indication how much this sum represents. Who is acting on its behalf in opposition to the British government? A sitting MP, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case so far, but it seems likely that he’ll use the ISDS mechanism to challenge the restrictions the UK levied against him after the Russian aggression. He has previously initiated proceedings against a small nation with similar intent, demanding sixteen billion dollars: an amount representing half state's annual revenue. Included in the lawyers acting for him in that case? Cherie Blair, spouse of the previous PM.

Trade specialists contend that the EU’s delay in using frozen oligarchs' funds as guarantee for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that such things could not occur. Previously, a former prime minister, championing the largest and riskiest of all investment pacts, stated: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” A consultant on this issue labelled activists of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression appeared to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “as corporations begin to understand the power they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat is now a reality. In the current period, oil and gas and mining firms have lodged a historic level of cases against nations rich and poor, contesting – as in the case of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Companies have thus far won vast sums by using ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP