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Can you reckon our democratic process works? It could be similar to this. We elect MPs. They vote on bills. When a majority is obtained, the bills pass into law. Legislation are enforced by the courts. End of story. However, that’s how it operated in the past. No longer.

The Emergence of Secret Arbitration Panels

In the modern era, foreign corporations, and the oligarchs that control them, are able to litigate against nation states for the laws they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes take place behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, including businesses based in this country. The door is open solely for entities registered abroad.

If a tribunal finds that a law or policy may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions, running into billions.

These awards constitute not tangible damages but funds the arbitrators decide the company would perhaps have made. The administration might be compelled to rescind the measure. It is hesitant to passing future laws in that area, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of cases are being initiated, as companies learn from each other, and private equity fund legal actions in return for a portion of the awards. The result? National sovereignty and democratic governance are now too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the choices taken by elected bodies is that this stipulation has been inserted – without public consent, and frequently under a climate of profound opacity – within international trade agreements.

A Specific Example: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the high court. The judge ruled that proposals to open the first major coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had approved. Now, this legal outcome could be compromised by an foreign court reporting to exclusively the entities filing the suit.

During August, a corporate entity whose final controllers are located in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was set up to hear it.

The claimant is litigating against the UK for the profits it might have made if the mine had been allowed to go ahead. Citizens have no clear indication how much this could amount to. What legal team is representing it against the British government? An elected representative, and former attorney-general in the previous government, the noted patriot the MP. The state passes a law, the domestic court supports it, then a overseas corporation contests it through an unaccountable arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coal mine dispute was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know nothing of the case to date, but it appears probable that he may employ the tribunal to fight the restrictions the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against a small nation on these grounds, demanding a colossal sum: equivalent to half of nation's yearly income. Among the legal team on his side? the wife of a former prime minister, married to the previous PM.

International law scholars believe that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Mounting Risks

We were assured that such things were not possible. Years ago, a government leader, advocating for the largest and riskiest of all such treaties, stated: “We’ve signed investment treaty upon trade deal and we have never seen a problem in the past.” An expert on this matter described critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies begin to understand the power they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with general mockery.

That prediction has now materialised. This year, fossil fuel and resource corporations have initiated a unprecedented number of suits against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – state efforts to stop environmental catastrophe. Corporations have so far won $114bn via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP