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Can you reckon our democratic process functions? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. Yet, that was how it operated in the past. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, foreign corporations, along with the billionaires who own them, are able to litigate against governments for the policies they pass, at private courts composed of commercial attorneys. Such disputes are held in secret. In contrast to domestic courts, these tribunals provide no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, including businesses headquartered in this country. The door is open only to businesses operating from foreign soil.

Should an arbitration panel finds that a government measure might diminish the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These awards constitute not real financial harm but compensation the arbitrators conclude the company might otherwise have made. The state could be forced to drop the legislation. It is hesitant to enacting future policies along the same lines, due to the risk of being sued.

A Process Growing Exponentially

Record numbers of cases are being initiated, as companies learn from each other, and hedge funds bankroll lawsuits in exchange for a share of the settlements. The result? National sovereignty and democracy are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices made by parliaments is that this stipulation has been incorporated – without democratic mandate, and frequently under conditions of total confidentiality – into bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the senior court. The judge ruled that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, were illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no consequence on our carbon budgets. The new government subsequently revoked the licence the previous administration had granted. Today, this victory could be compromised by an foreign court reporting to exclusively the corporations filing the suit.

During August, a corporate entity whose final controllers are based in the Cayman Islands initiated proceedings against the UK government. Last week a arbitration panel in Washington DC was set up to adjudicate on it.

This firm is suing the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no idea how much this sum represents. Which individual is representing it challenging the UK administration? A sitting MP, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The government enacts a policy, the high court upholds it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

The Russian Case

On the same day that the panel on the coal mine dispute was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case at present, but it appears probable that he’ll use the ISDS mechanism to fight the penalties the UK levied against him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg on these grounds, demanding $16bn: equivalent to half of nation's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, wife of the previous PM.

International law scholars argue that the EU’s hesitation in utilising seized Russian assets as guarantee for its financial support package arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states might be preventing the funds Ukraine desperately needs.

False Assurances and Mounting Threats

Politicians promised that such things were not possible. In 2014, a former prime minister, promoting the largest and riskiest of all these agreements, stated: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this topic accused activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms begin to understand the authority they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat is now a reality. This year, oil and gas and extraction companies have filed a record number of cases against nations rich and poor, contesting – as in the case of the UK mine – official measures to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP