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How do you perceive our democratic process functions? Perhaps something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. The law are enforced by the courts. That's it. Yet, that’s how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, international firms, and the oligarchs who own them, are able to litigate against nation states for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted in secret. Differing from national judiciaries, these panels grant no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, including enterprises headquartered in this country. Access is granted solely for entities operating from foreign soil.

If a tribunal rules that a government measure may compromise the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

These awards constitute not real financial harm but money the arbitrators determine the company might otherwise have made. The government could be forced to drop the legislation. It is hesitant to passing future laws along the same lines, for fear of being sued.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as companies learn from each other, and investment funds fund legal actions in return for a portion of the awards. The result? Sovereignty and popular rule are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the choices taken by parliaments is that this clause has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – inside trade treaties.

A Specific Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the High Court. The judge found that plans to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The new government subsequently revoked the permission the former government had approved. Currently, this legal outcome is under threat by an foreign court accountable to only the companies filing the suit.

During August, a company whose beneficial owners are based in the offshore financial centre initiated proceedings versus the UK government. Recently a arbitration panel in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to go ahead. The public has no idea how much this could amount to. What legal team is representing it against the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court validates it, then a international entity contests it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coalmine case was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case to date, but it appears probable that he may employ the tribunal to contest the penalties the UK levied against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation for this reason, demanding $16bn: an amount representing half government’s yearly budget. Among the lawyers on his side? the wife of a former prime minister, married to the previous PM.

Trade specialists contend that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states might be preventing the finance Ukraine critically depends on.

Empty Promises and Escalating Costs

We were assured that these scenarios wouldn’t happen. Years ago, a government leader, promoting the most significant and hazardous of all these agreements, declared: “We’ve signed trade deal upon trade deal and there has never been a problem in the past.” An adviser on this matter accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Cautionary notes that “when companies grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.

That prediction has come to pass. In the current period, energy and extraction companies have lodged a unprecedented number of cases against nations rich and poor, challenging – like the example of the UK mine – official measures to stop climate breakdown. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP