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How do you perceive our democratic process works? It could be along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. The law is upheld by the courts. Simple as that. However, that’s how it once functioned. Not anymore.

The Advent of Secret Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals behind them, can sue governments for the laws they pass, at private courts made up of business advocates. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies provide no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises operating from this country. The door is open only to businesses based overseas.

When a secret court determines that a government measure 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 tangible damages but money the panel members conclude the company might otherwise have made. The government might be compelled to drop the legislation. It becomes discouraged from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of cases are being filed, as firms observe each other, and hedge funds fund legal actions for a share of a share of the takings. The result? Sovereignty and democratic governance are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the choices taken by parliaments is that this clause has been inserted – without democratic mandate, and typically amid a climate of extreme secrecy – into international trade agreements.

A Concrete Example: The Cumbrian Coal Mine

Last year, environmental campaigners won a great victory at the high court. The presiding officer found that proposals to dig the first major coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no impact on national carbon targets. The incoming administration subsequently revoked the permission the former government had approved. Now, this success is under threat by an foreign court answering to only the entities bringing the case.

During August, a corporate entity whose final controllers reside in the offshore financial centre filed a lawsuit challenging the UK government. Recently a dispute settlement body in the United States was established to consider the case.

The company is suing the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have no clear indication how much this might be. Who is serving as its counsel against the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The state makes a decision, the domestic court upholds it, then a foreign company challenges it through an secretive arbitration panel, and a elected official works for its behalf.

The Russian Lawsuit

Concurrently that the court on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows scarce of the case at present, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK imposed on him after the war in Ukraine. He has previously filed a claim against a small nation on these grounds, demanding a colossal sum: 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, spouse of the previous PM.

International law scholars contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments might be preventing the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that these events could not occur. Years ago, a government leader, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal upon trade deal and there has never been a problem in the past.” A consultant on this matter described activists of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries needed to fear ISDS claims. Predictions that “once firms begin to understand the authority they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by scepticism.

That threat has come to pass. Recently, fossil fuel and mining firms have filed a record number of claims against nations both wealthy and developing, challenging – as in the case of the UK mine – government attempts to prevent climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured the majority. That equates to the combined GDP