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Can you understand our democratic process functions? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills become law. Statutes is maintained by the courts. End of story. Well, that used to be how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, international firms, and the billionaires behind them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises operating from this country. They are open solely for entities based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it has the power to grant financial penalties of vast sums, potentially billions.

These sums are based not on actual losses but compensation the tribunal officials determine the company would perhaps have made. The administration might be compelled to drop the legislation. It will be discouraged from introducing similar legislation in that area, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of cases are being brought, as corporations observe each other, and private equity fund legal actions in return for a share of the awards. The consequence? Democratic sovereignty and democracy are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the rulings made by legislatures is that this stipulation has been written – without public consent, and often in a climate of extreme secrecy – inside trade treaties.

A Real-World Case: The UK Coal Mine

Twelve months ago, activists secured a significant win at the high court. The presiding officer ruled that proposals to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine could have no impact on national carbon targets. The incoming administration later cancelled the consent the previous administration had granted. Today, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the companies filing the suit.

During August, a company whose ultimate owners are located in the Cayman Islands filed a lawsuit versus the UK government. The previous week a tribunal in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. We have no idea how much this might be. Which individual is serving as its counsel challenging the UK administration? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a foreign company disputes it through an secretive private court, and a sitting MP works for its behalf.

A Sanctions Case

Concurrently that the tribunal on the coalmine case was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know little of the case so far, but it seems likely that he may employ the ISDS mechanism to challenge the restrictions the UK imposed on him after the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, demanding sixteen billion dollars: half that government’s annual revenue. Among the counsel representing him there? Cherie Blair, married to the former British prime minister.

Trade specialists believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states may be obstructing the finance Ukraine urgently requires.

Empty Promises and Escalating Threats

The public was told that these events wouldn’t happen. Previously, a senior politician, advocating for the most significant and hazardous of all investment pacts, declared: “We’ve signed investment treaty upon trade deal and there has not been a case in the past.” An adviser on this issue described critics of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will shift their focus from the poorer states to the strong ones” were met with widespread derision.

That threat has now materialised. Recently, oil and gas and mining firms have initiated a historic level of claims against nations rich and poor, challenging – as in the case of the Whitehaven project – state efforts to stop environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP