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How do you understand our democratic process functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills become law. The law is upheld by the courts. Simple as that. Well, that used to be how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals that control them, can sue governments for the policies they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are held away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or legal review. The general public cannot take a case to them, nor can our government, or even enterprises operating from this country. Access is granted only to corporations operating from foreign soil.

If a tribunal finds that a government measure could harm the corporation’s projected profits, it may order damages of vast sums, even billions.

These sums are based not on tangible damages but funds the panel members determine the company could potentially have made. The government could be forced to drop the legislation. It becomes deterred from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of disputes are being brought, as companies take cues from each other, and private equity bankroll lawsuits in exchange for a portion of the settlements. The result? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the rulings made by elected bodies is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of total confidentiality – into international trade agreements.

A Concrete Example: The Cumbrian Coalmine

A year ago, activists achieved a major legal triumph at the High Court. The justice ruled that schemes to dig the first major coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on climate commitments. The new government subsequently revoked the consent the former government had approved. Currently, this success is under threat by an secret arbitration panel reporting to no one but the companies petitioning it.

Last August, a corporate entity whose final controllers reside in the tax haven lodged a claim against the UK government. The previous week a tribunal in the United States was established to adjudicate on it.

This firm is suing the UK for the money it would have generated if the mine had received permission to proceed. We have no clear indication how much this might be. Who is acting on its behalf against the state? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state enacts a policy, the high court supports it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Case

On the same day that the tribunal on the coalmine case was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case so far, but it seems likely that he may employ the tribunal to challenge the penalties the UK levied against him after the invasion of Ukraine. He has previously filed a claim against a small nation for this reason, claiming a colossal sum: half that government’s yearly budget. Part of the counsel acting for him in that case? Cherie Blair, spouse of the ex-UK leader.

Trade specialists contend that the EU’s procrastination in using frozen oligarchs' funds as security for its financial support package is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, unaccountable authority over sovereign states could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a senior politician, championing the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this topic accused critics of “alarmism … in reality, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “when companies grasp the power bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were met with widespread derision.

That prediction is now a reality. This year, energy and mining firms have lodged a record number of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – government attempts to halt global warming. Firms have so far won vast sums via ISDS, of which fossil fuel companies have secured $84bn. That represents the combined GDP