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How do you perceive our democratic process works? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills pass into law. Statutes are enforced by the courts. That's it. Yet, that used to be how it used to work. Not anymore.

The Advent of Secret Arbitration Panels

Today, international firms, and the wealthy individuals that control them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals made up of corporate lawyers. Such disputes take place away from public scrutiny. Unlike our courts, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises operating from this country. The door is open exclusively to businesses operating from foreign soil.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, potentially billions.

This compensation constitute not actual losses but compensation the tribunal officials conclude the company would perhaps have made. The state may have to abandon its policy. It is discouraged from introducing similar legislation in that area, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as firms learn from each other, and investment funds fund legal actions for a share of a cut of the settlements. The outcome? National sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the rulings taken by legislatures is that this provision has been written – without public consent, and often in a climate of total confidentiality – into trade treaties.

A Specific Instance: The UK Coal Mine

A year ago, activists won a great victory at the high court. The justice determined that proposals to open the first deep coalmine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine could have no impact on climate commitments. The incoming administration then withdrew the permission the previous administration had issued. Currently, this victory faces being overturned by an offshore tribunal accountable to only the companies filing the suit.

Last August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. Last week a tribunal in Washington DC was set up to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had received permission to go ahead. We have no clear indication how much this could amount to. Who is serving as its counsel against the state? An elected representative, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The state enacts a policy, the high court supports it, then a international entity contests it through an unaccountable arbitration panel, and a sitting MP represents its behalf.

The Russian Case

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows nothing of the case at present, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK levied against him after the war in Ukraine. He has already filed a claim against Luxembourg for this reason, claiming $16bn: equivalent to half of state's annual revenue. Part of the lawyers on his side? Cherie Blair, spouse of the former British prime minister.

Legal experts contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over elected governments could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Threats

We were assured that these scenarios were not possible. In 2014, a government leader, championing the most significant and hazardous of all these agreements, told us: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” An adviser on this issue labelled activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “as corporations grasp the power bestowed upon them, they will turn their attention from the poorer states to the strong ones” were met with general mockery.

That threat is now a reality. This year, energy and mining firms have lodged a unprecedented number of claims against nations across the economic spectrum, contesting – as in the case of the UK mine – state efforts to halt environmental catastrophe. Firms have to date won $114bn via ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP