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What is your perceive our democratic process operates? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Statutes are enforced by the courts. End of story. However, that was how it operated in the past. Those days are over.

The Advent of Secret Courts

Nowadays, international firms, or the wealthy individuals who own them, have the power to sue governments for the laws they pass, at private courts made up of corporate lawyers. Such disputes are held behind closed doors. Unlike our courts, these panels provide no opportunity to appeal or judicial review. The general public cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. They are open only to businesses operating from foreign soil.

When a secret court finds that a legislative action may compromise the corporation’s expected profits, it can award damages of hundreds of millions, running into billions.

These sums are based not on actual losses but money the tribunal officials conclude the company would perhaps have made. The administration may have to abandon its policy. It is hesitant to introducing similar legislation in that area, worried about incurring a lawsuit.

A System Running Rampant

Unprecedented levels of legal actions are being filed, as companies learn from each other, and private equity fund legal actions in exchange for a cut of the takings. The result? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the rulings taken by parliaments is that this provision has been incorporated – without public consent, and frequently under a climate of total confidentiality – inside trade treaties.

A Concrete Example: The UK Coal Mine

Last year, a conservation group secured a significant win at the high court. The justice determined that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have zero effect on climate commitments. The Labour government later cancelled the permission the Tories had approved. Now, this victory could be compromised by an secret arbitration panel reporting to no one but the corporations bringing the case.

During August, a firm whose final controllers are based in the Cayman Islands lodged a claim against the UK government. Recently a dispute settlement body in the US capital was set up to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. Citizens have no idea how much this could amount to. What legal team is acting on its behalf against the state? A member of parliament, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The state passes a law, the high court validates it, then a foreign company disputes it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

The Russian Lawsuit

Concurrently that the court on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case to date, but it seems likely that he’ll use the arbitration process to challenge the sanctions the UK enacted against him after the war in Ukraine. He has initiated proceedings against another European state with similar intent, claiming sixteen billion dollars: an amount representing half government’s yearly budget. Included in the lawyers representing him there? a prominent lawyer, spouse of the ex-UK leader.

Legal experts contend that the EU’s delay in using frozen Russian assets as security for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Risks

Politicians promised that these events were not possible. Years ago, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” An expert on this topic accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by these lawsuits. Warnings that “as corporations start to realise the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning has now materialised. This year, fossil fuel and extraction companies have lodged a unprecedented number of claims against nations rich and poor, contesting – like the example of the UK mine – government attempts to prevent climate breakdown. Companies have so far won $114bn via ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP