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How do you reckon our democratic process works? Maybe something like this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Statutes is maintained by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Advent of Secret Arbitration Panels

In the modern era, foreign corporations, and the wealthy individuals that control them, can sue elected administrations for the regulations they pass, at private courts made up of corporate lawyers. The cases are conducted away from public scrutiny. Differing from national judiciaries, these bodies provide no right of appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even enterprises operating from this country. The door is open only to corporations operating from foreign soil.

Should an arbitration panel finds that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant compensation of vast sums, even billions.

This compensation are based not on actual losses but compensation the tribunal officials decide the company would perhaps have made. The state could be forced to drop the legislation. It will be deterred from introducing similar legislation along the same lines, worried about being sued.

A System Growing Exponentially

Record numbers of cases are being brought, as companies learn from each other, and hedge funds fund legal actions in return for a cut of the takings. The consequence? Democratic sovereignty and democracy are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the choices taken by parliaments is that this clause has been inserted – without public consent, and frequently under an atmosphere of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Cumbrian Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The judge determined that schemes to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government later cancelled the licence the Tories had approved. Currently, this success could be compromised by an secret arbitration panel reporting to exclusively the entities bringing the case.

In August, a corporate entity whose beneficial owners reside in the offshore financial centre lodged a claim challenging the UK government. Recently a dispute settlement body in the US capital was convened to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to commence operations. The public has little idea how much this might be. Who is serving as its counsel challenging the UK administration? An elected representative, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the national judiciary validates it, then a overseas corporation contests it through an secretive private court, and a sitting MP represents its behalf.

The Russian Lawsuit

On the same day that the court on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case so far, but it appears probable that he will utilise the tribunal to contest the penalties the UK levied against him following the invasion of Ukraine. He has previously filed a claim against Luxembourg for this reason, seeking $16bn: an amount representing half nation's annual revenue. Included in the legal team on his side? the wife of a former prime minister, wife of the previous PM.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over elected governments might be preventing the funds Ukraine critically depends on.

Misleading Claims and Escalating Risks

The public was told that such things could not occur. In 2014, a former prime minister, advocating for the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement upon trade deal and we have never seen a problem in the past.” An expert on this topic labelled activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations had to worry about such legal actions. Cautionary notes that “once firms begin to understand the power they’ve been granted, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That threat has now materialised. This year, oil and gas and extraction companies have initiated a unprecedented number of cases against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – official measures to stop global warming. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured the majority. That is equivalent to the combined GDP