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What is your understand our democratic process works? Perhaps similar to this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that used to be how it operated in the past. Those days are over.

The Rise of Secret Tribunals

Today, international firms, or the billionaires that control them, are able to litigate against governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place in secret. Unlike our courts, these panels allow no opportunity to appeal or legal review. You or I are barred from bringing a case to them, just as our government, including businesses based in this country. The door is open solely for entities based overseas.

If a tribunal determines that a law or policy might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These sums represent not real financial harm but money the tribunal officials determine the company might otherwise have made. The state might be compelled to abandon its policy. It will be deterred from passing future laws in that area, worried about being sued.

A Process Running Rampant

Record numbers of disputes are being brought, as corporations learn from each other, and private equity bankroll lawsuits in exchange for a cut of the awards. The consequence? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the choices taken by elected bodies is that this clause has been inserted – absent public approval, and frequently under conditions of extreme secrecy – inside international trade agreements.

A Specific Example: The UK Coal Mine

Twelve months ago, environmental campaigners won a great victory at the senior court. The presiding officer ruled that plans to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have zero effect on climate commitments. The Labour government subsequently revoked the licence the former government had granted. Today, this victory is under threat by an foreign court answering to no one but the companies bringing the case.

During August, a firm whose beneficial owners are located in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in the United States was convened to hear it.

The claimant is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. We have no idea how much this could amount to. Who is representing it against the UK administration? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state makes a decision, the domestic court supports it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

Simultaneously that the panel on the mining lawsuit was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know little of the case so far, but it appears probable that he may employ the ISDS mechanism to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has previously started suing a small nation with similar intent, seeking $16bn: an amount representing half government’s yearly budget. Among the lawyers acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Legal experts believe that the EU’s procrastination in utilising seized oligarchs' funds as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over sovereign states might be preventing the money Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that such things wouldn’t happen. Years ago, a senior politician, advocating for the most significant and hazardous of all these agreements, told us: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An adviser on this matter described critics of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “once firms start to realise the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were met with scepticism.

That warning has now materialised. This year, oil and gas and resource corporations have initiated a unprecedented number of cases against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – official measures to halt environmental catastrophe. Corporations have to date won $114bn by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP