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Can you perceive our democratic process functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills become law. Statutes are enforced by the courts. That's it. However, that used to be how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, and the oligarchs that control them, can sue governments for the policies they pass, at offshore tribunals staffed by business advocates. The cases take place behind closed doors. Differing from national judiciaries, these tribunals grant no right of appeal or legal review. The general public cannot take a case to them, nor can our government, including businesses operating from this country. The door is open only to businesses based overseas.

When a secret court rules that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

This compensation are based not on actual losses but money the arbitrators decide the company would perhaps have made. The administration might be compelled to rescind the measure. It becomes deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and investment funds bankroll lawsuits in return for a cut of the settlements. The consequence? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions taken by elected bodies is that this provision has been inserted – without democratic mandate, and often in an atmosphere of profound opacity – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coalmine

A year ago, activists secured a significant win at the High Court. The justice ruled that plans to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the licence the previous administration had approved. Now, this legal outcome faces being overturned by an secret arbitration panel answering to only the corporations petitioning it.

In August, a corporate entity whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was established to hear it.

This firm is suing the UK for the revenue it might have made if the mine had been allowed to proceed. Citizens have no idea how much this could amount to. Which individual is acting on its behalf in opposition to the state? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court upholds it, then a international entity disputes it through an secretive offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the coalmine case was appointed, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case at present, but it is highly possible that he’ll use the tribunal to challenge the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has filed a claim against Luxembourg for this reason, seeking sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the counsel acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

International law scholars argue that the EU’s procrastination in using frozen Russian assets as security for its aid for Ukraine is due to concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over sovereign states might be preventing the funds Ukraine urgently requires.

Misleading Claims and Mounting Risks

Politicians promised that these scenarios wouldn’t happen. Previously, a senior politician, championing the most significant and hazardous of all investment pacts, declared: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” A consultant on this matter described campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “when companies start to realise the authority bestowed upon them, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That prediction has come to pass. This year, oil and gas and extraction companies have lodged a historic level of suits against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – state efforts to prevent global warming. Corporations have so far won $114bn through ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP