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Can you perceive our democratic process works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation are enforced by the courts. End of story. Well, that used to be how it once functioned. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals that control them, are able to litigate against nation states for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals grant no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, including enterprises headquartered in this country. Access is granted solely for businesses based overseas.

When a secret court finds that a government measure might diminish the corporation’s expected profits, it may order damages of vast sums, running into billions.

These awards constitute not tangible damages but compensation the panel members conclude the company might otherwise have made. The government could be forced to drop the legislation. It is deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as firms take cues from each other, and private equity finance suits for a share of a cut of the takings. The result? Democratic sovereignty and popular rule are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the rulings made by parliaments is that this clause has been incorporated – absent public approval, and often in a climate of extreme secrecy – within trade treaties.

A Specific Example: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer determined that schemes to open the first deep coalmine in the UK for a generation, in northwest England, were illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no consequence on our carbon budgets. The Labour government subsequently revoked the permission the former government had approved. Today, this success is under threat by an secret arbitration panel accountable to only the corporations petitioning it.

In August, a corporate entity whose ultimate owners are located in the offshore financial centre initiated proceedings challenging the UK government. The previous week a dispute settlement body in the US capital was set up to consider the case.

This firm is litigating against the UK for the money it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this might be. Who is serving as its counsel in opposition to the UK administration? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the high court validates it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

A Sanctions Case

Simultaneously that the panel on the coalmine case was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. The public knows little of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has started suing a small nation on these grounds, seeking a colossal sum: an amount representing half state's annual revenue. Among the lawyers on his side? a prominent lawyer, spouse of the ex-UK leader.

International law scholars argue that the EU’s hesitation in leveraging immobilised state funds as guarantee for its financial support package is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, promoting the biggest and most dangerous of all such treaties, told us: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” An expert on this issue described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states had to worry about these lawsuits. Warnings that “once firms start to realise the power they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by general mockery.

That threat has now materialised. Recently, fossil fuel and mining firms have lodged a unprecedented number of cases against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to halt climate breakdown. Firms have thus far won $114bn through ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP