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Can you understand our democratic process operates? Maybe along the lines of this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills pass into law. The law is upheld by the courts. End of story. Well, that’s how it used to work. No longer.

The Rise of Shadow Tribunals

Nowadays, overseas companies, or the wealthy individuals behind them, can sue governments for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are conducted in secret. Differing from national judiciaries, these panels provide no avenue for appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even companies based in this country. Access is granted solely for businesses registered abroad.

If a tribunal determines that a legislative action could harm the corporation’s anticipated profits, it may order damages of vast sums, potentially billions.

These sums constitute not tangible damages but money the arbitrators conclude the company would perhaps have made. The state might be compelled to rescind the measure. It becomes discouraged from introducing similar legislation of a similar nature, worried about facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being brought, as companies take cues from each other, and private equity finance suits in return for a share of the awards. The outcome? Democratic sovereignty and democratic governance are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the choices made by legislatures is that this clause has been written – without public consent, and typically amid a climate of total confidentiality – within trade treaties.

A Specific Instance: The UK Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer found that schemes to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had endorsed the questionable argument that the mine could have zero effect on national carbon targets. The Labour government subsequently revoked the consent the Tories had issued. Now, this victory faces being overturned by an foreign court accountable to exclusively the entities petitioning it.

Last August, a firm whose beneficial owners are located in the offshore financial centre initiated proceedings versus the UK government. The previous week a arbitration panel in Washington DC was convened to consider the case.

The company is suing the UK for the profits it could have earned if the mine had been allowed to go ahead. We have no idea how much this could amount to. Who is serving as its counsel in opposition to the UK administration? An elected representative, and previous senior legal advisor in the previous government, that great patriot the MP. The government makes a decision, the national judiciary supports it, then a international entity challenges it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

The Russian Case

On the same day that the court on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to fight the penalties the UK enacted against him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, seeking $16bn: an amount representing half state's yearly income. Part of the legal team representing him there? a prominent lawyer, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized Russian assets as collateral for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the money Ukraine urgently requires.

False Assurances and Escalating Risks

We were assured that these scenarios wouldn’t happen. In 2014, a government leader, advocating for the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” A consultant on this issue described critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms start to realise the power they’ve been granted, they will turn their attention from the weak nations to the developed economies” were met with widespread derision.

That warning is now a reality. In the current period, fossil fuel and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – state efforts to stop global warming. Corporations have thus far won $114bn by using ISDS, of which energy giants have obtained the majority. That represents the combined GDP