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Can you perceive our democratic process functions? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills become law. The law are enforced by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Advent of Offshore Tribunals

Today, international firms, and the oligarchs behind them, are able to litigate against governments for the laws they pass, at private courts composed of commercial attorneys. The cases take place in secret. Differing from national judiciaries, these tribunals provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, just as our government, including businesses based in this country. They are open only to businesses operating from foreign soil.

When a secret court finds that a government measure might diminish the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

These awards constitute not actual losses but compensation the arbitrators decide the company would perhaps have made. The state may have to abandon its policy. It is discouraged from introducing similar legislation in that area, for fear of being sued.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as companies learn from each other, and hedge funds fund legal actions in exchange for a share of the awards. The outcome? Democratic sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override domestic law and the rulings taken by legislatures is that this provision has been inserted – without democratic mandate, and often in a climate of profound opacity – inside international trade agreements.

A Specific Example: The Whitehaven Coalmine

Last year, activists secured a significant win at the senior court. The judge determined that schemes to open the first major coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have had no consequence on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had approved. Currently, this victory could be compromised by an foreign court reporting to no one but the corporations petitioning it.

Last August, a company whose final controllers reside in the offshore financial centre initiated proceedings challenging the UK government. Recently a tribunal in the US capital was set up to hear it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to proceed. Citizens have no clear indication how much this sum represents. What legal team is representing it in opposition to the UK administration? A member of parliament, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the high court upholds it, then a foreign company contests it through an undemocratic arbitration panel, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the court on the coalmine case was established, information emerged from a parliamentary answer 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 may employ the tribunal to challenge the penalties the UK levied against him following the invasion of Ukraine. He has previously initiated proceedings against a small nation on these grounds, seeking $16bn: equivalent to half of nation's yearly income. Part of the legal team representing him there? a prominent lawyer, married to the previous PM.

Legal experts contend that the EU’s delay in leveraging immobilised Russian assets as collateral for its loan to Ukraine is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Costs

The public was told that such things could not occur. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An expert on this issue described activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries needed to fear such legal actions. Predictions that “when companies start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That warning has come to pass. In the current period, energy and extraction companies have filed a record number of cases against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – official measures to halt climate breakdown. Companies have to date won $114bn by using ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP