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What is your understand our democratic process works? Perhaps similar to this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills become law. Statutes is maintained by the courts. That's it. Yet, that’s how it used to work. No longer.

The Emergence of Secret Courts

Nowadays, international firms, along with the billionaires that control them, are able to litigate against elected administrations for the policies they pass, at private courts composed of commercial attorneys. These proceedings take place behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even companies based in this country. The door is open exclusively to businesses operating from foreign soil.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, potentially billions.

This compensation are based not on tangible damages but funds the arbitrators determine the company would perhaps have made. The administration may have to drop the legislation. It will be hesitant to introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of cases are being filed, as firms learn from each other, and private equity fund legal actions in return for a share of the awards. The outcome? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the rulings taken by legislatures is that this stipulation has been inserted – without democratic mandate, and frequently under a climate of profound opacity – inside bilateral investment treaties.

A Specific Example: The UK Coalmine

A year ago, activists won a great victory at the High Court. The justice ruled that plans to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine could have no consequence on national carbon targets. The Labour government later cancelled the permission the previous administration had granted. Currently, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the corporations petitioning it.

During August, a corporate entity whose ultimate owners reside in the Cayman Islands lodged a claim challenging the UK government. Recently a tribunal in Washington DC was established to adjudicate on it.

The company is litigating against the UK for the profits it might have made if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Which individual is serving as its counsel against the UK administration? An elected representative, and former attorney-general in the Conservative government, the noted patriot the MP. The state makes a decision, the high court validates it, then a overseas corporation contests it through an secretive arbitration panel, and a elected official works for its behalf.

An Oligarch's Case

Simultaneously that the panel on the coal mine dispute was established, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case at present, but it appears probable that he may employ the ISDS mechanism to contest the sanctions the UK levied against him following the invasion of Ukraine. He has started suing Luxembourg on these grounds, demanding $16bn: equivalent to half of state's annual revenue. Part of the counsel on his side? a prominent lawyer, spouse of the previous PM.

Trade specialists believe that the EU’s procrastination in utilising seized Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations could be blocking the money Ukraine critically depends on.

False Assurances and Mounting Risks

Politicians promised that such things were not possible. Previously, a government leader, promoting the most significant and hazardous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this issue labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Predictions that “as corporations grasp the power they’ve been granted, they will turn their attention from the weak nations to the developed economies” were dismissed with general mockery.

That threat has now materialised. Recently, oil and gas and resource corporations have lodged a historic level of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – state efforts to stop climate breakdown. Firms have to date won vast sums by using ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP