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Can you perceive our democratic process works? Maybe something like this. The public votes for MPs. They vote on bills. If a majority is obtained, the bills pass into law. Statutes is upheld by the courts. Simple as that. Yet, that was how it operated in the past. No longer.

The Advent of Secret Tribunals

In the modern era, international firms, or the oligarchs who own them, can sue governments for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings are held behind closed doors. Differing from national judiciaries, these bodies allow no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses operating from this country. Access is granted solely for businesses operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation are based not on real financial harm but money the tribunal officials decide the company could potentially have made. The state may have to rescind the measure. It becomes discouraged from passing future laws of a similar nature, worried about facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being filed, as corporations observe each other, and investment funds fund legal actions for a share of a share of the takings. The consequence? Democratic sovereignty and popular rule are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the rulings taken by legislatures is that this clause has been inserted – without public consent, and typically amid an atmosphere of profound opacity – into trade treaties.

A Concrete Case: The UK Coal Mine

A year ago, activists won a great victory at the senior court. The judge ruled that schemes to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no consequence on climate commitments. The Labour government subsequently revoked the permission the former government had approved. Currently, this legal outcome faces being overturned by an offshore tribunal reporting to exclusively the entities filing the suit.

In August, a firm whose ultimate owners are located in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in Washington DC was established to hear it.

This firm is suing the UK for the revenue it could have earned if the mine had received permission to proceed. The public has no clear indication how much this might be. Who is serving as its counsel challenging the UK administration? A sitting MP, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The government makes a decision, the high court validates it, then a foreign company challenges it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the court on the mining lawsuit was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know little of the case so far, but it appears probable that he will utilise the arbitration process to fight the restrictions the UK levied against him subsequent to the war in Ukraine. He has already initiated proceedings against Luxembourg on these grounds, seeking $16bn: equivalent to half of government’s annual revenue. Part of the legal team representing him there? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine desperately needs.

Empty Promises and Growing Costs

We were assured that these scenarios were not possible. Years ago, a senior politician, advocating for the largest and riskiest of all these agreements, stated: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” A consultant on this topic labelled activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “when companies begin to understand the power they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with general mockery.

That warning is now a reality. Recently, oil and gas and resource corporations have filed a unprecedented number of cases against nations both wealthy and developing, opposing – like the example of the UK mine – government attempts to halt global warming. Firms have to date won $114bn through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP