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How do you reckon our democratic process functions? Perhaps similar to this. We elect MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Advent of Secret Tribunals

In the modern era, overseas companies, or the oligarchs that control them, are able to litigate against governments for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are conducted in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. The door is open solely for corporations based overseas.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions, even billions.

These sums are based not on tangible damages but compensation the panel members conclude the company would perhaps have made. The administration may have to abandon its policy. It is hesitant to passing future laws in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as firms learn from each other, and hedge funds fund legal actions for a share of a portion of the takings. The result? Democratic sovereignty and democratic governance are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the decisions enacted by legislatures is that this clause has been incorporated – absent public approval, and frequently under a climate of profound opacity – inside international trade agreements.

A Real-World Example: The Cumbrian Coalmine

Last year, activists achieved a major legal triumph at the senior court. The judge ruled that schemes to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine could have no impact on climate commitments. The Labour government then withdrew the licence the former government had issued. Now, this victory is under threat by an foreign court reporting to no one but the entities petitioning it.

Last August, a company whose final controllers are based in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a arbitration panel in the United States was convened to consider the case.

This firm is suing the UK for the profits it could have earned if the mine had received permission to commence operations. The public has no clear indication how much this sum represents. Who is serving as its counsel against the UK administration? A member of parliament, and former attorney-general in the previous government, the noted patriot the MP. The state enacts a policy, the domestic court upholds it, then a international entity challenges it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coalmine case was appointed, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case at present, but it appears probable that he may employ the arbitration process to contest the restrictions the UK imposed on him after the war in Ukraine. He has initiated proceedings against a small nation with similar intent, seeking $16bn: an amount representing half government’s yearly budget. Part of the legal team representing him there? a prominent lawyer, spouse of the former British prime minister.

International law scholars contend that the EU’s procrastination in utilising seized oligarchs' funds as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Escalating Risks

The public was told that these scenarios were not possible. Previously, a government leader, advocating for the largest and riskiest of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” An expert on this matter labelled critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations had to worry about these lawsuits. Predictions that “once firms start to realise the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with scepticism.

That threat is now a reality. In the current period, oil and gas and mining firms have filed a unprecedented number of cases against nations rich and poor, contesting – similar to the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have to date won $114bn via ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP