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Can you perceive our democratic process functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. That's it. Well, that was how it used to work. No longer.

The Advent of Secret Tribunals

Nowadays, foreign corporations, and the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at secret arbitration panels made up of business advocates. The cases are conducted away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even companies headquartered in this country. The door is open solely for corporations based overseas.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it may order compensation of vast sums, potentially billions.

These awards are based not on actual losses but funds the arbitrators determine the company would perhaps have made. The state could be forced to abandon its policy. It is discouraged from passing future laws along the same lines, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being initiated, as corporations learn from each other, and hedge funds finance suits in return for a portion of the settlements. The outcome? Sovereignty and popular rule are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the rulings made by parliaments is that this provision has been inserted – absent public approval, and typically amid conditions of total confidentiality – into international trade agreements.

A Specific Example: The UK Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer found that schemes to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the permission the former government had issued. Today, this victory could be compromised by an offshore tribunal reporting to only the entities filing the suit.

Last August, a company whose final controllers reside in the offshore financial centre lodged a claim challenging the UK government. Recently a tribunal in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this might be. Which individual is serving as its counsel challenging the British government? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case to date, but it appears probable that he’ll use the ISDS mechanism to contest the sanctions the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against another European state on these grounds, claiming sixteen billion dollars: equivalent to half of state's yearly income. Included in the lawyers on his side? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

Empty Promises and Escalating Risks

The public was told that these events could not occur. Years ago, a senior politician, championing the largest and riskiest of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this matter labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies grasp the authority they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were met with general mockery.

That prediction is now a reality. This year, oil and gas and mining firms have initiated a historic level of cases against nations rich and poor, challenging – as in the case of the Whitehaven project – state efforts to halt climate breakdown. Firms have so far won $114bn by using ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP