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How do you perceive our democratic process functions? Maybe something like this. We elect MPs. They debate and pass bills. When a majority is secured, the bills become law. Statutes is upheld by the courts. End of story. Yet, that’s how it used to work. No longer.

The Advent of Shadow Tribunals

Today, international firms, and the billionaires that control them, are able to litigate against nation states for the laws they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are conducted in secret. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. The general public are unable to file a case to them, nor can our government, or even enterprises operating from this country. The door is open exclusively to entities operating from foreign soil.

If a tribunal finds that a law or policy could harm the corporation’s anticipated profits, it may order financial penalties of vast sums, potentially billions.

These awards constitute not tangible damages but money the panel members determine the company might otherwise have made. The state could be forced to rescind the measure. It becomes deterred from passing future laws in that area, for fear of facing litigation.

A System Growing Exponentially

Record numbers of disputes are being brought, as firms observe each other, and private equity finance suits in return for a cut of the awards. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the decisions enacted by parliaments is that this clause has been inserted – absent public approval, and frequently under a climate of total confidentiality – inside bilateral investment treaties.

A Real-World Example: The Whitehaven Coal Mine

Last year, activists won a great victory at the High Court. The presiding officer ruled that proposals to open the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The Labour government then withdrew the licence the former government had issued. Now, this victory is under threat by an foreign court accountable to only the corporations bringing the case.

During August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a tribunal in the US capital was convened to consider the case.

This firm is litigating against the UK for the money it could have earned if the mine had been allowed to go ahead. We have no idea how much this sum represents. Which individual is acting on its behalf against the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The administration passes a law, the domestic court supports it, then a overseas corporation contests it through an undemocratic private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the court on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it seems likely that he may employ the ISDS mechanism to contest the penalties the UK enacted against him after the invasion of Ukraine. He has already filed a claim against a small nation for this reason, demanding a colossal sum: an amount representing half government’s yearly budget. Among the legal team acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments could be blocking the money Ukraine urgently requires.

Empty Promises and Escalating Risks

We were assured that such things could not occur. Previously, a government leader, advocating for the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An expert on this topic described campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “as corporations start to realise the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.

That threat is now a reality. Recently, energy and mining firms have initiated a record number of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP