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How do you perceive our democratic process works? It could be along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Legislation is maintained by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Advent of Secret Arbitration Panels

Nowadays, overseas companies, and the billionaires that control them, can sue governments for the laws they pass, at private courts staffed by business advocates. Such disputes are held behind closed doors. Differing from national judiciaries, these panels allow no avenue for appeal or legal review. You or I cannot take a case to them, just as our government, or even companies based in this country. Access is granted only to businesses registered abroad.

If a tribunal determines that a legislative action might diminish the corporation’s expected profits, it has the power to grant damages of vast sums, even billions.

This compensation represent not tangible damages but money the arbitrators determine the company could potentially have made. The administration may have to rescind the measure. It is discouraged from enacting future policies along the same lines, for fear of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being filed, as corporations observe each other, and private equity bankroll lawsuits in exchange for a cut of the takings. The result? Sovereignty and democratic governance are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the rulings enacted by legislatures is that this stipulation has been written – without public consent, and typically amid a climate of extreme secrecy – into trade treaties.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The justice ruled that plans to dig the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have no consequence on climate commitments. The Labour government then withdrew the licence the Tories had granted. Currently, this victory could be compromised by an offshore tribunal answering to only the companies filing the suit.

Last August, a company whose beneficial owners are based in the tax haven lodged a claim versus the UK government. Recently a arbitration panel in the US capital was convened to hear it.

The company is suing the UK for the revenue it would have generated if the mine had received permission to commence operations. We have no clear indication how much this sum represents. What legal team is representing it challenging the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a international entity disputes it through an secretive private court, and a elected official represents its behalf.

An Oligarch's Case

Concurrently that the court on the coalmine case was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case at present, but it appears probable that he will utilise the tribunal to contest the restrictions the UK enacted against him following the war in Ukraine. He has initiated proceedings against a small nation with similar intent, seeking $16bn: an amount representing half state's yearly budget. Part of the legal team representing him there? a prominent lawyer, spouse of the former British prime minister.

International law scholars believe that the EU’s delay in using frozen Russian assets as collateral for its financial support package stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations could be blocking the funds Ukraine desperately needs.

Misleading Claims and Mounting Costs

Politicians promised that these events were not possible. In 2014, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this issue labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries needed to fear ISDS claims. Predictions that “when companies start to realise the power bestowed upon them, they will turn their attention from the poorer states to the developed economies” were met with widespread derision.

That prediction is now a reality. Recently, oil and gas and resource corporations have filed a historic level of claims against nations rich and poor, opposing – as in the case of the UK mine – government attempts to halt global warming. Corporations have thus far won $114bn by using ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP