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How do you understand our democratic process functions? Maybe similar to this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills become law. The law is upheld by the courts. End of story. Yet, that used to be how it used to work. No longer.

The Rise of Secret Tribunals

Nowadays, overseas companies, or the billionaires that control them, are able to litigate against nation states for the policies they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals provide no right of appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even companies operating from this country. They are open only to entities registered abroad.

Should an arbitration panel determines that a legislative action might diminish the corporation’s expected profits, it has the power to grant damages of vast sums, potentially billions.

This compensation are based not on tangible damages but money the arbitrators conclude the company could potentially have made. The state may have to drop the legislation. It is deterred from introducing similar legislation in that area, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Record numbers of cases are being brought, as firms take cues from each other, and investment funds finance suits for a share of a share of the awards. The consequence? National sovereignty and democratic governance are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the choices taken by legislatures is that this stipulation has been written – without democratic mandate, and frequently under conditions of total confidentiality – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice determined that proposals to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have no consequence on national carbon targets. The new government later cancelled the consent the previous administration had issued. Now, this legal outcome is under threat by an foreign court accountable to no one but the entities bringing the case.

In August, a company whose ultimate owners are based in the offshore financial centre initiated proceedings versus the UK government. Last week a arbitration panel in Washington DC was convened to consider the case.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to proceed. Citizens have no clear indication how much this could amount to. Which individual is serving as its counsel in opposition to the state? A sitting MP, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a international entity disputes it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

The Russian Case

Simultaneously that the court on the coalmine case was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK imposed on him after the Russian aggression. He has filed a claim against another European state with similar intent, claiming $16bn: half that state's annual revenue. Among the legal team on his side? a prominent lawyer, wife of the previous PM.

Trade specialists believe that the EU’s procrastination in leveraging immobilised state funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Misleading Claims and Growing Risks

We were assured that such things could not occur. Years ago, a former prime minister, advocating for the largest and riskiest of all such treaties, stated: “We’ve signed trade agreement upon trade deal and there has not been a issue in the past.” An expert on this matter labelled activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries needed to fear such legal actions. Warnings that “when companies grasp the influence bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were met with scepticism.

That threat has come to pass. Recently, fossil fuel and resource corporations have initiated a historic level of suits against nations both wealthy and developing, opposing – like the example of the UK mine – government attempts to stop environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP