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How do you reckon our democratic process works? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, international firms, and the billionaires who own them, have the power to sue nation states for the laws they pass, at secret arbitration panels made up of business advocates. These proceedings are conducted in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open solely for corporations based overseas.

When a secret court determines that a law or policy might diminish the corporation’s expected profits, it can award compensation of hundreds of millions, even billions.

These awards represent not real financial harm but money the tribunal officials determine the company might otherwise have made. The government could be forced to rescind the measure. It will be discouraged from passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Record numbers of cases are being filed, as firms observe each other, and hedge funds finance suits in exchange for a share of the settlements. The result? National sovereignty and popular rule are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the choices taken by legislatures is that this clause has been inserted – without democratic mandate, and frequently under an atmosphere of total confidentiality – into bilateral investment treaties.

A Real-World Instance: The Whitehaven Coalmine

Twelve months ago, activists won a great victory at the high court. The justice ruled that schemes to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine would have zero effect on national carbon targets. The Labour government later cancelled the permission the former government had granted. Now, this success is under threat by an offshore tribunal accountable to only the companies bringing the case.

In August, a corporate entity whose ultimate owners are based in the Cayman Islands lodged a claim versus the UK government. Last week a tribunal in Washington DC was set up to hear it.

The company is suing the UK for the profits it could have earned if the mine had been allowed to proceed. The public has little idea how much this sum represents. Who is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The state enacts a policy, the national judiciary upholds it, then a international entity disputes it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case at present, but it is highly possible that he’ll use the arbitration process to challenge the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, seeking a colossal sum: an amount representing half state's annual revenue. Among the lawyers on his side? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in leveraging immobilised state funds as security for its loan to Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine desperately needs.

Empty Promises and Escalating Costs

The public was told that these events could not occur. Previously, a senior politician, advocating for the largest and riskiest of all such treaties, declared: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” An adviser on this matter described campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by such legal actions. Warnings that “as corporations start to realise the influence they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with general mockery.

That threat is now a reality. In the current period, energy and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Corporations have to date won $114bn by using ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP