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How do you understand our democratic process functions? Maybe something like this. We elect MPs. They legislate on bills. Should a majority is secured, the bills become law. Legislation is upheld by the courts. End of story. Well, that used to be how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

Nowadays, international firms, along with the wealthy individuals who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels composed of business advocates. The cases take place away from public scrutiny. Differing from national judiciaries, these panels allow no avenue for appeal or oversight by judges. The general public cannot take a case to them, nor can our government, or even enterprises headquartered in this country. Access is granted only to corporations registered abroad.

Should an arbitration panel determines that a legislative action could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, potentially billions.

This compensation constitute not actual losses but compensation the panel members conclude the company might otherwise have made. The administration may have to rescind the measure. It becomes hesitant to enacting future policies along the same lines, worried about facing litigation.

A Process Spiralling Out of Control

Record numbers of disputes are being brought, as corporations learn from each other, and hedge funds finance suits for a share of a share of the takings. The outcome? National sovereignty and popular rule are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the choices made by legislatures is that this provision has been incorporated – without public consent, and often in conditions of profound opacity – inside bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The presiding officer ruled that schemes to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration later cancelled the licence the previous administration had granted. Today, this legal outcome is under threat by an offshore tribunal reporting to only the companies filing the suit.

During August, a firm whose final controllers reside in the Cayman Islands filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

This firm is litigating against the UK for the profits it could have earned if the mine had received permission to go ahead. The public has no clear indication how much this might be. What legal team is representing it challenging the state? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a foreign company disputes it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Case

Concurrently that the court on the mining lawsuit was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case so far, but it appears probable that he will utilise the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the war in Ukraine. He has previously started suing another European state with similar intent, seeking $16bn: equivalent to half of nation's annual revenue. Part of the lawyers on his side? a prominent lawyer, wife of the former British prime minister.

International law scholars believe that the EU’s delay in using frozen Russian assets as security for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments may be obstructing the finance Ukraine desperately needs.

Empty Promises and Growing Risks

We were assured that these scenarios could not occur. In 2014, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” A consultant on this issue labelled activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states had to worry about such legal actions. Warnings that “when companies begin to understand the power bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat is now a reality. In the current period, oil and gas and mining firms have filed a record number of claims against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – official measures to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded the majority. That represents the combined GDP