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How do you understand our democratic process works? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills pass into law. The law is upheld by the courts. End of story. Yet, that used to be how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, foreign corporations, and the oligarchs who own them, can sue elected administrations for the regulations they pass, at private courts made up of business advocates. Such disputes take place in secret. In contrast to domestic courts, these bodies provide no right of appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, including companies based in this country. The door is open solely for businesses operating from foreign soil.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These awards represent not real financial harm but compensation the panel members determine the company might otherwise have made. The administration could be forced to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A Mechanism Running Rampant

Unprecedented levels of disputes are being initiated, as companies observe each other, and private equity fund legal actions for a share of a portion of the awards. The outcome? Sovereignty and democratic governance are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the decisions made by elected bodies is that this provision has been incorporated – absent public approval, and often in a climate of profound opacity – inside trade treaties.

A Concrete Case: The Whitehaven Coal Mine

Twelve months ago, a conservation group secured a significant win at the senior court. The judge ruled that schemes to open the first deep coalmine in the UK for a generation, in northwest England, were wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine could have zero effect on our carbon budgets. The new government later cancelled the permission the Tories had approved. Currently, this success could be compromised by an foreign court accountable to only the companies bringing the case.

During August, a firm whose ultimate owners reside in the offshore financial centre initiated proceedings challenging the UK government. The previous week a tribunal in the United States was convened to hear it.

The claimant is litigating against the UK for the profits it could have earned if the mine had received permission to go ahead. The public has no clear indication how much this sum represents. Which individual is representing it challenging the state? An elected representative, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court upholds it, then a international entity challenges it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Case

On the same day that the panel on the mining lawsuit was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case to date, but it seems likely that he may employ the tribunal to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously started suing Luxembourg on these grounds, seeking a colossal sum: equivalent to half of nation's yearly income. Included in the counsel on his side? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

False Assurances and Mounting Costs

Politicians promised that these events were not possible. Years ago, a government leader, advocating for the most significant and hazardous of all these agreements, declared: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An expert on this topic accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “when companies begin to understand the influence they now possess, they will shift their focus from the poorer states to the strong ones” were dismissed with general mockery.

That warning is now a reality. In the current period, fossil fuel and mining firms have filed a record number of claims against nations both wealthy and developing, contesting – as in the case of the UK mine – official measures to prevent climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP