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What is your understand our democratic process works? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Legislation is upheld by the courts. End of story. Yet, that used to be how it used to work. No longer.

The Advent of Secret Tribunals

In the modern era, foreign corporations, along with the oligarchs behind them, have the power to sue nation states for the regulations they pass, at secret arbitration panels made up of corporate lawyers. Such disputes take place behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or judicial review. The general public are unable to file a case to them, nor can our government, or even companies headquartered in this country. The door is open solely for corporations registered abroad.

When a secret court rules that a law or policy may compromise the corporation’s projected profits, it has the power to grant damages of vast sums, potentially billions.

These awards constitute not tangible damages but compensation the panel members decide the company could potentially have made. The government may have to rescind the measure. It will be hesitant to introducing similar legislation in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being brought, as firms take cues from each other, and investment funds finance suits in exchange for a cut of the awards. The outcome? Sovereignty and popular rule are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the decisions enacted by legislatures is that this clause has been incorporated – without democratic mandate, and often in a climate of profound opacity – inside international trade agreements.

A Real-World Case: The Cumbrian Coalmine

Last year, environmental campaigners secured a significant win at the senior court. The presiding officer ruled that proposals to open the first major coal mine in the UK for 30 years, in Cumbria, had been wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have zero effect on climate commitments. The incoming administration subsequently revoked the permission the Tories had issued. Now, this success is under threat by an offshore tribunal answering to exclusively the companies filing the suit.

In August, a company whose beneficial owners reside in the tax haven lodged a claim challenging the UK government. Last week a tribunal in the United States was set up to adjudicate on it.

The company is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have no clear indication how much this could amount to. Which individual is representing it against the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

The Russian Case

Concurrently that the court on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case so far, but it seems likely that he may employ the arbitration process to fight the restrictions the UK imposed on him following the war in Ukraine. He has filed a claim against a small nation for this reason, demanding a colossal sum: half that state's yearly income. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in using frozen Russian assets as collateral for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

False Assurances and Mounting Costs

We were assured that these events wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all such treaties, told us: “The UK has signed trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this matter labelled campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies start to realise the authority they’ve been granted, they will turn their attention from the poorer states to the developed economies” were dismissed with widespread derision.

That threat is now a reality. In the current period, energy and extraction companies have lodged a unprecedented number of suits against nations rich and poor, opposing – similar to the UK mine – state efforts to stop climate breakdown. Corporations have so far won $114bn by using ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP