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Can you perceive our democratic process works? Maybe similar to this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it operated in the past. No longer.

The Rise of Shadow Arbitration Panels

In the modern era, international firms, along with the wealthy individuals behind them, have the power to sue governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. The cases take place in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, including companies headquartered in this country. The door is open exclusively to corporations based overseas.

If a tribunal finds that a legislative action could harm the corporation’s projected profits, it can award damages of hundreds of millions of pounds, even billions.

This compensation represent not tangible damages but money the panel members determine the company would perhaps have made. The government might be compelled to abandon its policy. It becomes hesitant to enacting future policies in that area, for fear of facing litigation.

A Process Running Rampant

Record numbers of disputes are being filed, as firms observe each other, and hedge funds bankroll lawsuits in return for a share of the settlements. The outcome? Democratic sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the choices made by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under an atmosphere of extreme secrecy – within bilateral investment treaties.

A Specific Case: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the senior court. The judge determined that schemes to open the first major coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no impact on national carbon targets. The Labour government then withdrew the licence the Tories had issued. Now, this victory could be compromised by an foreign court accountable to exclusively the companies petitioning it.

Last August, a corporate entity whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. Last week a tribunal in the US capital was set up to hear it.

The claimant is suing the UK for the money it might have made if the mine had been permitted to proceed. The public has no idea how much this sum represents. What legal team is serving as its counsel against the state? A member of parliament, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary upholds it, then a international entity disputes it through an undemocratic private court, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Simultaneously that the court on the mining lawsuit was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know nothing of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the penalties the UK enacted against him following the war in Ukraine. He has already filed a claim against another European state on these grounds, seeking a colossal sum: half that state's yearly income. Included in the counsel representing him there? the wife of a former prime minister, married to the former British prime minister.

Legal experts argue that the EU’s hesitation in using frozen oligarchs' funds as security for its loan to Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that these scenarios could not occur. Years ago, a government leader, promoting the largest and riskiest of all investment pacts, declared: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” A consultant on this matter labelled activists of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies grasp the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with general mockery.

That warning is now a reality. In the current period, oil and gas and mining firms have initiated a historic level of claims against nations rich and poor, opposing – like the example of the UK mine – government attempts to prevent climate breakdown. Companies have so far won $114bn via ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP