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How do you reckon our democratic process functions? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that was how it operated in the past. Not anymore.

The Rise of Secret Arbitration Panels

Today, international firms, or the wealthy individuals who own them, can sue governments for the laws they pass, at private courts made up of business advocates. Such disputes are conducted behind closed doors. Unlike our courts, these bodies provide no right of appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even businesses based in this country. The door is open exclusively to businesses registered abroad.

When a secret court determines that a legislative action may compromise the corporation’s expected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards constitute not tangible damages but funds the tribunal officials conclude the company might otherwise have made. The government may have to drop the legislation. It will be deterred from introducing similar legislation along the same lines, due to the risk of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies learn from each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The outcome? Sovereignty and democracy are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can supersede national legislation and the decisions taken by parliaments is that this stipulation has been written – without democratic mandate, and frequently under conditions of total confidentiality – within trade treaties.

A Real-World Instance: The UK Coalmine

Last year, activists won a great victory at the senior court. The justice determined that plans to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The new government later cancelled the licence the Tories had approved. Now, this victory is under threat by an foreign court accountable to no one but the companies bringing the case.

In August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in the United States was convened to hear it.

This firm is suing the UK for the profits it could have earned if the mine had received permission to go ahead. The public has little idea how much this sum represents. What legal team is representing it against the UK administration? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The state enacts a policy, the domestic court supports it, then a foreign company disputes it through an unaccountable private court, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know scarce of the case to date, but it appears probable that he’ll use the tribunal to contest the sanctions the UK levied against him after the Russian aggression. He has already started suing another European state on these grounds, demanding a colossal sum: an amount representing half nation's annual revenue. Among the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

International law scholars believe that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over democratic administrations could be blocking the money Ukraine critically depends on.

Misleading Claims and Mounting Threats

We were assured that such things could not occur. In 2014, a government leader, advocating for the most significant and hazardous of all these agreements, stated: “The UK has signed trade agreement upon trade deal and there has never been a issue in the past.” An adviser on this issue accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states had to worry about these lawsuits. Predictions that “as corporations start to realise the authority they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were met with scepticism.

That prediction has come to pass. Recently, fossil fuel and resource corporations have lodged a record number of suits against nations rich and poor, contesting – similar to the Whitehaven project – government attempts to halt environmental catastrophe. Firms have to date won $114bn by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP