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How do you reckon our democratic process works? It could be something like this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that’s how it used to work. No longer.

The Advent of Secret Courts

Nowadays, overseas companies, and the wealthy individuals behind them, are able to litigate against nation states for the regulations they pass, at offshore tribunals made up of business advocates. Such disputes take place away from public scrutiny. Differing from national judiciaries, these bodies grant no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even companies operating from this country. The door is open solely for entities registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s expected profits, it can award financial penalties of vast sums, even billions.

This compensation constitute not tangible damages but compensation the arbitrators determine the company would perhaps have made. The government might be compelled to abandon its policy. It is deterred from passing future laws along the same lines, worried about facing litigation.

A System Growing Exponentially

Record numbers of cases are being filed, as firms observe each other, and private equity bankroll lawsuits in exchange for a share of the awards. The consequence? National sovereignty and democratic governance are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the choices made by elected bodies is that this clause has been incorporated – absent public approval, and often in a climate of profound opacity – within international trade agreements.

A Specific Instance: The Whitehaven Coal Mine

Last year, a conservation group won a great victory at the High Court. The presiding officer found that proposals to open the first deep coalmine in the UK for 30 years, in northwest England, were illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine could have no impact on national carbon targets. The incoming administration later cancelled the consent the former government had granted. Now, this success could be compromised by an secret arbitration panel answering to exclusively the companies filing the suit.

In August, a corporate entity whose beneficial owners are based in the tax haven lodged a claim against the UK government. The previous week a tribunal in the US capital was established to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. The public has no clear indication how much this might be. Which individual is representing it against the state? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a international entity disputes it through an secretive private court, and a sitting MP acts on its behalf.

The Russian Challenge

Concurrently that the panel on the coal mine dispute was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation with similar intent, claiming sixteen billion dollars: an amount representing half government’s yearly income. Included in the legal team acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Trade specialists argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Mounting Threats

Politicians promised that these events were not possible. In 2014, a former prime minister, promoting the most significant and hazardous of all investment pacts, declared: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” A consultant on this issue described campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about such legal actions. Cautionary notes that “as corporations begin to understand the power bestowed upon them, they will shift their focus from the poorer states to the developed economies” were dismissed with scepticism.

That prediction is now a reality. This year, fossil fuel and resource corporations have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the UK mine – government attempts to halt climate breakdown. Corporations have so far won vast sums via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP