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How do you perceive our democratic process operates? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that’s how it used to work. Not anymore.

The Emergence of Secret Tribunals

Today, overseas companies, or the wealthy individuals that control them, have the power to sue nation states for the regulations they pass, at secret arbitration panels staffed by business advocates. These proceedings are conducted behind closed doors. Differing from national judiciaries, these bodies provide no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses operating from this country. The door is open solely for businesses operating from foreign soil.

Should an arbitration panel determines that a government measure might diminish the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

These awards constitute not actual losses but funds the panel members decide the company might otherwise have made. The administration may have to drop the legislation. It becomes hesitant to enacting future policies along the same lines, due to the risk of being sued.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as firms learn from each other, and investment funds fund legal actions for a share of a cut of the settlements. The outcome? Sovereignty and popular rule are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the rulings made by elected bodies is that this provision has been inserted – absent public approval, and often in conditions of profound opacity – within trade treaties.

A Real-World Instance: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer ruled that plans to dig the first deep coalmine in the UK for 30 years, in Cumbria, had been wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have had no impact on our carbon budgets. The incoming administration then withdrew the permission the former government had approved. Currently, this success faces being overturned by an secret arbitration panel accountable to exclusively the entities petitioning it.

In August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC was established to consider the case.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to proceed. We have no idea how much this could amount to. What legal team is representing it against the UK administration? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state makes a decision, the domestic court upholds it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

Concurrently that the panel on the mining lawsuit was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case so far, but it appears probable that he may employ the ISDS mechanism to challenge the penalties the UK imposed on him following the invasion of Ukraine. He has initiated proceedings against a small nation on these grounds, claiming $16bn: half that nation's yearly budget. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars argue that the EU’s delay in utilising seized Russian assets as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states might be preventing the money Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. Previously, a senior politician, promoting the biggest and most dangerous of all such treaties, told us: “The UK has signed trade agreement upon trade deal and there has never been a case in the past.” A consultant on this topic described activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by such legal actions. Predictions that “as corporations begin to understand the power bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were greeted by scepticism.

That warning has now materialised. This year, oil and gas and resource corporations have initiated a historic level of suits against nations rich and poor, opposing – as in the case of the Whitehaven project – state efforts to prevent global warming. Firms have thus far won vast sums via ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP