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Can you perceive our democratic process operates? It could be along the lines of this. The public votes for MPs. They vote on bills. When a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. Well, that’s how it once functioned. Those days are over.

The Emergence of Shadow Arbitration Panels

In the modern era, foreign corporations, and the wealthy individuals behind them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of business advocates. These proceedings take place behind closed doors. Differing from national judiciaries, these panels provide no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, including companies based in this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s anticipated profits, it may order damages of hundreds of millions, potentially billions.

These awards are based not on real financial harm but funds the tribunal officials determine the company would perhaps have made. The administration might be compelled to drop the legislation. It will be hesitant to enacting future policies in that area, due to the risk of facing litigation.

A Process Spiralling Out of Control

Record numbers of cases are being initiated, as corporations learn from each other, and hedge funds bankroll lawsuits in return for a portion of the settlements. The outcome? Sovereignty and popular rule are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the rulings enacted by elected bodies is that this clause has been written – absent public approval, and often in conditions of profound opacity – inside international trade agreements.

A Specific Instance: The UK Coalmine

Last year, activists achieved a major legal triumph at the High Court. The justice determined that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on climate commitments. The new government later cancelled the permission the former government had granted. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to exclusively the corporations petitioning it.

In August, a firm whose ultimate owners are located in the Cayman Islands lodged a claim against the UK government. Recently a arbitration panel in the United States was set up to hear it.

The company is seeking compensation from the UK for the money it would have generated if the mine had been allowed to proceed. The public has no clear indication how much this sum represents. Which individual is representing it against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a international entity contests it through an secretive private court, and a elected official represents its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case at present, but it appears probable that he will utilise the ISDS mechanism to fight the sanctions the UK levied against him following the war in Ukraine. He has previously started suing a small nation for this reason, seeking $16bn: half that nation's yearly budget. Among the lawyers on his side? the wife of a former prime minister, married to the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its financial support package arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Growing Threats

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the largest and riskiest of all investment pacts, declared: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” A consultant on this issue accused critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states had to worry about ISDS claims. Predictions that “once firms start to realise the authority they now possess, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That threat is now a reality. This year, fossil fuel and extraction companies have filed a historic level of cases against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – state efforts to prevent global warming. Corporations have so far won vast sums via ISDS, of which energy giants have obtained $84bn. That represents the combined GDP