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How do you perceive our democratic process operates? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. That's it. However, that used to be how it operated in the past. No longer.

The Advent of Secret Tribunals

Nowadays, foreign corporations, and the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at offshore tribunals staffed by commercial attorneys. The cases are conducted in secret. Differing from national judiciaries, these bodies provide no right of appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, including companies headquartered in this country. They are open only to businesses operating from foreign soil.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions, potentially billions.

These sums represent not actual losses but compensation the tribunal officials determine the company would perhaps have made. The administration may have to abandon its policy. It will be discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Process Running Rampant

Historically high figures of legal actions are being brought, as corporations take cues from each other, and hedge funds finance suits in return for a cut of the awards. The result? Sovereignty and democracy are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the rulings made by elected bodies is that this stipulation has been inserted – without democratic mandate, and often in an atmosphere of extreme secrecy – inside international trade agreements.

A Real-World Instance: The Whitehaven Coalmine

A year ago, activists achieved a major legal triumph at the High Court. The justice determined that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration later cancelled the permission the former government had granted. Now, this legal outcome could be compromised by an secret arbitration panel reporting to only the entities petitioning it.

In August, a corporate entity whose beneficial owners reside in the Cayman Islands initiated proceedings versus the UK government. Recently a dispute settlement body in Washington DC was set up to consider the case.

The claimant is litigating against the UK for the profits it might have made if the mine had received permission to proceed. The public has no idea how much this might be. What legal team is serving as its counsel against the British government? A member of parliament, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the court on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it appears probable that he will utilise the arbitration process to challenge the sanctions the UK enacted against him following the war in Ukraine. He has previously initiated proceedings against a small nation on these grounds, demanding sixteen billion dollars: half that state's annual revenue. Part of the legal team on his side? the wife of a former prime minister, married to the previous PM.

Trade specialists argue that the EU’s procrastination in using frozen state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over sovereign states may be obstructing the money Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that these scenarios were not possible. Years ago, a former prime minister, advocating for the biggest and most dangerous of all these agreements, stated: “The UK has signed trade agreement upon trade deal and there has not been a problem in the past.” A consultant on this issue labelled activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries needed to fear such legal actions. Cautionary notes that “when companies grasp the power they’ve been granted, they will turn their attention from the weak nations to the developed economies” were met with general mockery.

That warning has come to pass. In the current period, energy and resource corporations have lodged a unprecedented number of cases against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Companies have to date won $114bn via ISDS, of which energy giants have obtained the majority. That represents the combined GDP