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Can you perceive our democratic process operates? Perhaps similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Advent of Shadow Tribunals

Nowadays, overseas companies, along with the billionaires behind them, have the power to sue governments for the laws they pass, at offshore tribunals staffed by business advocates. Such disputes take place in secret. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. You or I are unable to file a case to them, just as our government, including enterprises operating from this country. Access is granted only to entities registered abroad.

When a secret court finds that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not real financial harm but funds the panel members determine the company might otherwise have made. The administration might be compelled to rescind the measure. It is discouraged from introducing similar legislation in that area, for fear of facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being initiated, as companies take cues from each other, and private equity finance suits for a share of a cut of the settlements. The outcome? Democratic sovereignty and popular rule are now too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the rulings made by legislatures is that this provision has been inserted – without public consent, and often in conditions of total confidentiality – within trade treaties.

A Real-World Example: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge found that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine could have no impact on our carbon budgets. The incoming administration later cancelled the licence the previous administration had approved. Now, this victory is under threat by an secret arbitration panel reporting to only the companies filing the suit.

In August, a company whose final controllers are based in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in Washington DC was established to consider the case.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been allowed to go ahead. The public has little idea how much this could amount to. Who is representing it against the state? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the domestic court validates it, then a foreign company contests it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case at present, but it is highly possible that he will utilise the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg with similar intent, demanding a colossal sum: half that government’s yearly income. Included in the lawyers on his side? the wife of a former prime minister, married to the ex-UK leader.

International law scholars contend that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine urgently requires.

Empty Promises and Mounting Risks

The public was told that these events could not occur. In 2014, a senior politician, advocating for the largest and riskiest of all investment pacts, stated: “The UK has signed investment treaty upon trade deal and there has not been a issue in the past.” A consultant on this matter accused campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about these lawsuits. Predictions that “once firms begin to understand the power bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning has come to pass. In the current period, energy and mining firms have filed a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – state efforts to prevent climate breakdown. Corporations have so far won $114bn by using ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP