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How do you understand our democratic process functions? It could be along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. The law is maintained by the courts. That's it. Yet, that was how it used to work. Those days are over.

The Emergence of Secret Arbitration Panels

In the modern era, overseas companies, along with the billionaires that control them, have the power to sue nation states for the policies they pass, at private courts made up of business advocates. The cases are conducted behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. The general public are unable to file a case to them, just as our government, or even businesses operating from this country. The door is open only to entities based overseas.

When a secret court rules that a law or policy could harm the corporation’s expected profits, it can award damages of vast sums, even billions.

This compensation constitute not actual losses but compensation the tribunal officials decide the company could potentially have made. The state might be compelled to rescind the measure. It will be deterred from enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms learn from each other, and investment funds finance suits in return for a share of the awards. The consequence? Democratic sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the decisions taken by parliaments is that this clause has been incorporated – absent public approval, and typically amid an atmosphere of profound opacity – inside trade treaties.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the High Court. The justice ruled that schemes to open the first deep coalmine in the UK for a generation, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine could have no consequence on national carbon targets. The new government then withdrew the licence the previous administration had granted. Now, this victory is under threat by an foreign court reporting to no one but the companies filing the suit.

In August, a firm whose beneficial owners are located in the tax haven filed a lawsuit versus the UK government. Recently a dispute settlement body in the US capital was set up to consider the case.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. We have no idea how much this might be. Which individual is acting on its behalf in opposition to the UK administration? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a foreign company disputes it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the coalmine case was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he’ll use the tribunal to fight the restrictions the UK enacted against him after the war in Ukraine. He has previously started suing another European state on these grounds, demanding $16bn: half that government’s yearly income. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

Legal experts argue that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that such things could not occur. In 2014, a government leader, promoting the most significant and hazardous of all these agreements, declared: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” A consultant on this matter labelled campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations grasp the power they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were met with widespread derision.

That threat has now materialised. Recently, oil and gas and mining firms have lodged a unprecedented number of cases against nations both wealthy and developing, opposing – like the example of the Whitehaven project – state efforts to halt global warming. Companies have so far won $114bn through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP