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Can you reckon our democratic process operates? Perhaps similar to this. Citizens choose MPs. They vote on bills. When a majority is secured, the bills pass into law. The law are enforced by the courts. End of story. Well, that’s how it used to work. Those days are over.

The Advent of Secret Arbitration Panels

In the modern era, overseas companies, and the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at offshore tribunals composed of commercial attorneys. These proceedings take place away from public scrutiny. Unlike our courts, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, including companies based in this country. Access is granted solely for businesses registered abroad.

If a tribunal determines that a legislative action could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

This compensation represent not actual losses but money the tribunal officials determine the company could potentially have made. The government may have to abandon its policy. It becomes deterred from enacting future policies in that area, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms take cues from each other, and private equity bankroll lawsuits in return for a portion of the awards. The outcome? Democratic sovereignty and democracy are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices enacted by elected bodies is that this clause has been inserted – without public consent, and typically amid conditions of total confidentiality – into trade treaties.

A Specific Instance: The Cumbrian Coalmine

Last year, activists achieved a major legal triumph at the high court. The justice ruled that proposals to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine would have no impact on our carbon budgets. The new government then withdrew the permission the Tories had approved. Currently, this success faces being overturned by an foreign court answering to only the corporations filing the suit.

Last August, a corporate entity whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Recently a arbitration panel in Washington DC was established to hear it.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. We have no idea how much this could amount to. Who is serving as its counsel against the UK administration? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a foreign company disputes it through an secretive arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

On the same day that the panel on the coalmine case was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it seems likely that he may employ the tribunal to fight the restrictions the UK imposed on him after the invasion of Ukraine. He has previously started suing another European state with similar intent, claiming a colossal sum: half that state's annual revenue. Among the lawyers on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

Politicians promised that such things wouldn’t happen. In 2014, a senior politician, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed investment treaty upon trade deal and we have never seen a issue in the past.” An expert on this topic accused campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the power they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were met with scepticism.

That threat has come to pass. This year, oil and gas and extraction companies have initiated a historic level of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to stop climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured the majority. That is equivalent to the combined GDP