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Can you perceive our democratic process operates? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills pass into law. Legislation are enforced by the courts. That's it. Well, that was how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

Today, overseas companies, or the billionaires behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels made up of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. You or I cannot take a case to them, and neither can our government, including enterprises headquartered in this country. The door is open exclusively to businesses registered abroad.

When a secret court finds that a government measure could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions, even billions.

These sums represent not actual losses but funds the panel members conclude the company would perhaps have made. The state may have to abandon its policy. It becomes deterred from introducing similar legislation along the same lines, for fear of being sued.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as companies take cues from each other, and hedge funds bankroll lawsuits in exchange for a cut of the takings. The outcome? Sovereignty and popular rule are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the decisions made by parliaments is that this stipulation has been incorporated – without public consent, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Specific Instance: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The presiding officer ruled that schemes to open the first new deep coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no impact on national carbon targets. The Labour government later cancelled the permission the previous administration had issued. Currently, this legal outcome faces being overturned by an offshore tribunal reporting to no one but the companies petitioning it.

Last August, a company whose beneficial owners reside in the tax haven filed a lawsuit challenging the UK government. Last week a arbitration panel in Washington DC was established to hear it.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. Who is acting on its behalf challenging the UK administration? An elected representative, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the national judiciary validates it, then a overseas corporation contests it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Case

Simultaneously that the court on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it seems likely that he may employ the tribunal to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has initiated proceedings against Luxembourg for this reason, demanding sixteen billion dollars: half that government’s yearly budget. Among the lawyers representing him there? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists contend that the EU’s procrastination in using frozen Russian assets as security for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

Empty Promises and Mounting Costs

We were assured that these events were not possible. Years ago, a former prime minister, promoting the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty upon trade deal and we have never seen a issue in the past.” A consultant on this topic described campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations should be concerned by ISDS claims. Warnings that “as corporations begin to understand the influence bestowed upon them, they will shift their focus from the weak nations to the developed economies” were greeted by general mockery.

That warning has come to pass. This year, fossil fuel and mining firms have lodged a historic level of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to stop climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP