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How do you reckon our democratic process operates? Maybe along the lines of this. We elect MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that’s how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, or the wealthy individuals who own them, have the power to sue elected administrations for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are held in secret. In contrast to domestic courts, these panels allow no opportunity to appeal or judicial review. The general public cannot take a case to them, just as our government, or even enterprises operating from this country. The door is open solely for businesses operating from foreign soil.

Should an arbitration panel determines that a law or policy may compromise the corporation’s projected profits, it has the power to grant financial penalties of vast sums, running into billions.

This compensation represent not actual losses but money the arbitrators determine the company might otherwise have made. The administration may have to abandon its policy. It becomes deterred from introducing similar legislation in that area, worried about incurring a lawsuit.

A System Running Rampant

Record numbers of legal actions are being filed, as firms observe each other, and hedge funds fund legal actions for a share of a portion of the settlements. The result? National sovereignty and popular rule are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the choices made by parliaments is that this provision has been written – without public consent, and frequently under conditions of extreme secrecy – into international trade agreements.

A Specific Case: The UK Coalmine

A year ago, a conservation group secured a significant win at the High Court. The justice determined that schemes to dig the first new deep coal mine in the UK for a generation, in northwest England, were unlawfully approved by the previous government, which had agreed to the questionable argument that the mine would have had no consequence on our carbon budgets. The new government then withdrew the permission the previous administration had approved. Currently, this success is under threat by an offshore tribunal accountable to no one but the corporations filing the suit.

During August, a corporate entity whose final controllers are located in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in the US capital was set up to hear it.

The company is litigating against the UK for the money it could have earned if the mine had received permission to proceed. We have little idea how much this might be. What legal team is serving as its counsel challenging the state? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a foreign company challenges it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

The Russian Case

Simultaneously that the panel on the mining lawsuit was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it seems likely that he may employ the tribunal to challenge the restrictions the UK enacted against him after the Russian aggression. He has previously started suing Luxembourg for this reason, demanding $16bn: half that nation's yearly income. Part of the counsel representing him there? Cherie Blair, married to the ex-UK leader.

Trade specialists argue that the EU’s hesitation in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine critically depends on.

Empty Promises and Mounting Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a senior politician, promoting the most significant and hazardous of all these agreements, stated: “The UK has signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this matter labelled campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear these lawsuits. Warnings that “once firms grasp the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were met with widespread derision.

That threat has now materialised. This year, energy and resource corporations have initiated a unprecedented number of suits against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – official measures to halt climate breakdown. Companies have so far won $114bn by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP