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What is your perceive our democratic process works? Maybe something like this. The public votes for MPs. They vote on bills. If a majority is secured, the bills become law. The law is upheld by the courts. That's it. Well, that used to be how it used to work. Not anymore.

The Emergence of Secret Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at private courts staffed by business advocates. The cases are conducted in secret. Differing from national judiciaries, these bodies provide no right of appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, including companies operating from this country. Access is granted only to corporations registered abroad.

Should an arbitration panel finds that a government measure could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions, even billions.

This compensation constitute not real financial harm but money the tribunal officials determine the company might otherwise have made. The state could be forced to drop the legislation. It will be hesitant to enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Process Running Rampant

Historically high figures of cases are being initiated, as companies observe each other, and hedge funds bankroll lawsuits in return for a share of the settlements. The outcome? National sovereignty and popular rule are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the rulings enacted by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid a climate of extreme secrecy – within bilateral investment treaties.

A Concrete Example: The UK Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The justice ruled that proposals to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government subsequently revoked the consent the Tories had approved. Now, this success faces being overturned by an secret arbitration panel reporting to no one but the companies petitioning it.

In August, a firm whose ultimate owners are based in the offshore financial centre initiated proceedings against the UK government. The previous week a dispute settlement body in Washington DC was established to hear it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have little idea how much this could amount to. Who is serving as its counsel against the state? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the high court validates it, then a international entity challenges it through an undemocratic private court, and a elected official works for its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case at present, but it appears probable that he will utilise the arbitration process to fight the penalties the UK imposed on him after the Russian aggression. He has previously filed a claim against a small nation for this reason, claiming a colossal sum: equivalent to half of government’s annual revenue. Part of the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars contend that the EU’s delay in leveraging immobilised state funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Threats

The public was told that such things were not possible. Years ago, a senior politician, advocating for the largest and riskiest of all investment pacts, declared: “The UK has signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this topic labelled critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations begin to understand the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That threat has come to pass. In the current period, energy and mining firms have initiated a unprecedented number of suits against nations across the economic spectrum, challenging – similar to the UK mine – state efforts to stop environmental catastrophe. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP