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What is your reckon our democratic process functions? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Statutes is upheld by the courts. End of story. Well, that’s how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

Nowadays, foreign corporations, along with the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even companies headquartered in this country. They are open only to businesses operating from foreign soil.

Should an arbitration panel rules that a legislative action could harm the corporation’s anticipated profits, it may order damages of hundreds of millions, potentially billions.

These awards represent not tangible damages but money the arbitrators determine the company would perhaps have made. The government could be forced to rescind the measure. It will be hesitant to introducing similar legislation of a similar nature, for fear of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as firms take cues from each other, and hedge funds bankroll lawsuits in return for a portion of the takings. The outcome? Democratic sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the decisions enacted by parliaments is that this stipulation has been written – without democratic mandate, and typically amid a climate of profound opacity – into international trade agreements.

A Concrete Example: The UK Coal Mine

A year ago, activists won a great victory at the high court. The presiding officer ruled that proposals to excavate the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine would have had zero effect on climate commitments. The incoming administration subsequently revoked the permission the previous administration had granted. Now, this success is under threat by an secret arbitration panel accountable to only the corporations filing the suit.

In August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings against the UK government. Last week a arbitration panel in the US capital was established to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had been permitted to go ahead. We have little idea how much this could amount to. Which individual is acting on its behalf in opposition to the state? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a foreign company disputes it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coal mine dispute was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case at present, but it appears probable that he’ll use the tribunal to fight the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has initiated proceedings against a small nation with similar intent, demanding $16bn: equivalent to half of government’s yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars believe that the EU’s delay in using frozen Russian assets as security for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations might be preventing the funds Ukraine critically depends on.

Empty Promises and Escalating Threats

Politicians promised that these events wouldn’t happen. Previously, a senior politician, promoting the largest and riskiest of all investment pacts, told us: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this issue labelled campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “when companies grasp the influence they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.

That prediction is now a reality. This year, oil and gas and extraction companies have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the UK mine – state efforts to stop environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP