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What is your perceive our democratic process works? It could be along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that was how it used to work. No longer.

The Rise of Shadow Tribunals

Nowadays, overseas companies, or the billionaires who own them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of corporate lawyers. These proceedings take place in secret. In contrast to domestic courts, these tribunals provide no avenue for appeal or judicial review. The general public are unable to file a case to them, nor can our government, including businesses based in this country. Access is granted solely for businesses registered abroad.

If a tribunal finds that a legislative action might diminish the corporation’s projected profits, it may order compensation of vast sums, even billions.

These sums represent not actual losses but compensation the arbitrators decide the company would perhaps have made. The state might be compelled to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Process Running Rampant

Historically high figures of legal actions are being initiated, as corporations learn from each other, and investment funds finance suits for a share of a cut of the settlements. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the decisions made by legislatures is that this provision has been inserted – without public consent, and often in an atmosphere of total confidentiality – into trade treaties.

A Real-World Example: The Cumbrian Coalmine

Last year, activists won a great victory at the senior court. The presiding officer found that schemes to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The new government subsequently revoked the licence the former government had approved. Today, this legal outcome faces being overturned by an foreign court reporting to no one but the corporations petitioning it.

In August, a company whose ultimate owners reside in the tax haven lodged a claim against the UK government. Last week a arbitration panel in the United States was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. The public has little idea how much this could amount to. What legal team is acting on its behalf challenging the state? A member of parliament, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The administration passes a law, the high court upholds it, then a overseas corporation contests it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Challenge

On the same day that the tribunal on the mining lawsuit was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it seems likely that he may employ the arbitration process to fight the sanctions the UK levied against him following the invasion of Ukraine. He has already initiated proceedings against Luxembourg for this reason, claiming a colossal sum: equivalent to half of government’s annual revenue. Among the legal team representing him there? a prominent lawyer, wife of the ex-UK leader.

Legal experts argue that the EU’s hesitation in leveraging immobilised state funds as security for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the money Ukraine urgently requires.

Misleading Claims and Escalating Costs

The public was told that these scenarios wouldn’t happen. Years ago, a government leader, championing the largest and riskiest of all such treaties, told us: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this topic described critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “once firms grasp the influence bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were met with scepticism.

That threat is now a reality. Recently, energy and mining firms have filed a record number of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to halt environmental catastrophe. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP