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Can you reckon our democratic process works? Maybe something like this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. The law is upheld by the courts. Simple as that. Yet, that was how it once functioned. Those days are over.

The Advent of Shadow Tribunals

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held away from public scrutiny. Unlike our courts, these tribunals allow no opportunity to appeal or legal review. The general public are unable to file a case to them, just as our government, or even companies headquartered in this country. The door is open solely for entities based overseas.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it has the power to grant compensation of vast sums, potentially billions.

These awards are based not on tangible damages but compensation the tribunal officials decide the company could potentially have made. The state could be forced to drop the legislation. It is hesitant to passing future laws along the same lines, for fear of being sued.

A Process Growing Exponentially

Record numbers of disputes are being initiated, as firms take cues from each other, and investment funds fund legal actions in return for a cut of the awards. The result? Democratic sovereignty and popular rule are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the rulings enacted by parliaments is that this provision has been written – absent public approval, and typically amid an atmosphere of total confidentiality – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

A year ago, activists secured a significant win at the senior court. The justice determined that plans to excavate the first major coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no consequence on our carbon budgets. The new government then withdrew the consent the former government had approved. Currently, this legal outcome faces being overturned by an foreign court accountable to no one but the companies bringing the case.

Last August, a corporate entity whose ultimate owners reside in the Cayman Islands lodged a claim versus the UK government. Recently a tribunal in the United States was set up to consider the case.

This firm is litigating against the UK for the money it would have generated if the mine had been permitted to go ahead. Citizens have no clear indication how much this sum represents. Who is representing it challenging the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The state makes a decision, the domestic court validates it, then a overseas corporation contests it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case at present, but it seems likely that he may employ the arbitration process to contest the penalties the UK levied against him after the Russian aggression. He has previously initiated proceedings against a small nation with similar intent, demanding a colossal sum: equivalent to half of state's annual revenue. Included in the lawyers representing him there? a prominent lawyer, married to the former British prime minister.

International law scholars believe that the EU’s procrastination in utilising seized state funds as security for its financial support package stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the money Ukraine critically depends on.

False Assurances and Growing Costs

We were assured that these events wouldn’t happen. Years ago, a government leader, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” A consultant on this matter accused activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by general mockery.

That threat has come to pass. Recently, fossil fuel and extraction companies have filed a unprecedented number of suits against nations both wealthy and developing, challenging – similar to the Whitehaven project – official measures to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP