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Can you reckon our democratic process works? Maybe something like this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. The law are enforced by the courts. That's it. Yet, that was how it once functioned. Not anymore.

The Rise of Shadow Tribunals

In the modern era, international firms, and the billionaires who own them, have the power to sue governments for the policies they pass, at private courts made up of corporate lawyers. These proceedings take place in secret. Differing from national judiciaries, these panels allow no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. Access is granted exclusively to corporations registered abroad.

When a secret court determines that a government measure might diminish the corporation’s projected profits, it may order financial penalties of hundreds of millions, potentially billions.

These awards represent not actual losses but compensation the panel members determine the company might otherwise have made. The administration could be forced to drop the legislation. It is deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A System Growing Exponentially

Record numbers of legal actions are being initiated, as firms learn from each other, and private equity fund legal actions in exchange for a cut of the settlements. The result? Democratic sovereignty and democratic governance are now prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the choices made by parliaments is that this stipulation has been written – without democratic mandate, and frequently under a climate of total confidentiality – into trade treaties.

A Specific Instance: The UK Coalmine

Last year, a conservation group secured a significant win at the senior court. The judge found that plans to dig the first deep coalmine in the UK for 30 years, in northwest England, were wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The new government later cancelled the consent the Tories had granted. Now, this legal outcome faces being overturned by an offshore tribunal reporting to only the companies bringing the case.

In August, a firm whose final controllers are located 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 claimant is suing the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. Who is serving as its counsel challenging the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, that great patriot the MP. The government passes a law, the high court validates it, then a international entity contests it through an secretive arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the mining lawsuit was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case at present, but it is highly possible that he’ll use the ISDS mechanism to challenge the restrictions the UK enacted against him following the war in Ukraine. He has started suing a small nation with similar intent, demanding a colossal sum: half that nation's annual revenue. Part of the lawyers representing him there? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists contend that the EU’s procrastination in utilising seized Russian assets as guarantee for its financial support package stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over elected governments might be preventing the money Ukraine critically depends on.

Empty Promises and Mounting Threats

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “The UK has signed trade deal upon trade deal and there has not been a problem in the past.” A consultant on this matter described campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about ISDS claims. Predictions that “as corporations begin to understand the influence bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That prediction has come to pass. In the current period, energy and mining firms have initiated a record number of suits against nations across the economic spectrum, opposing – similar to the Whitehaven project – government attempts to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP