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What is your reckon our democratic process works? It could be along the lines of this. We elect MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. However, that’s how it operated in the past. Those days are over.

The Advent of Secret Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals behind them, have the power to sue governments for the regulations they pass, at offshore tribunals made up of corporate lawyers. The cases are conducted away from public scrutiny. In contrast to domestic courts, these bodies allow no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even companies operating from this country. They are open only to corporations operating from foreign soil.

Should an arbitration panel rules that a government measure may compromise the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These awards represent not actual losses but money the arbitrators determine the company would perhaps have made. The government might be compelled to abandon its policy. It becomes discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as firms learn from each other, and hedge funds fund legal actions in return for a cut of the awards. The consequence? Sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the choices enacted by legislatures is that this provision has been inserted – absent public approval, and frequently under conditions of profound opacity – inside international trade agreements.

A Specific Example: The UK Coalmine

Last year, a conservation group secured a significant win at the high court. The justice ruled that plans to open the first major coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The Labour government subsequently revoked the licence the Tories had granted. Today, this legal outcome could be compromised by an foreign court reporting to no one but the corporations bringing the case.

Last August, a corporate entity whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. Recently a tribunal in the United States was set up to hear it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been permitted to commence operations. The public has no idea how much this might be. What legal team is serving as its counsel against the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary upholds it, then a foreign company contests it through an undemocratic private court, and a member of our parliament acts on its behalf.

The Russian Lawsuit

On the same day that the court on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it seems likely that he’ll use the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has initiated proceedings against a small nation with similar intent, seeking sixteen billion dollars: an amount representing half nation's yearly income. Part of the lawyers on his side? the wife of a former prime minister, wife of the previous PM.

Trade specialists argue that the EU’s hesitation in utilising seized state funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations could be blocking the finance Ukraine critically depends on.

Misleading Claims and Escalating Risks

We were assured that these events wouldn’t happen. In 2014, a former prime minister, championing the largest and riskiest of all such treaties, told us: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this matter labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations had to worry about these lawsuits. Predictions that “once firms grasp the influence they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with scepticism.

That prediction has come to pass. Recently, energy and extraction companies have lodged a unprecedented number of cases against nations across the economic spectrum, opposing – like the example of the Whitehaven project – state efforts to stop climate breakdown. Corporations have to date won $114bn via ISDS, of which oil majors have secured the majority. That equates to the combined GDP