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How do you perceive our democratic process operates? Maybe along the lines of this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Yet, that was how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, or the wealthy individuals that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals composed of business advocates. The cases are held behind closed doors. Unlike our courts, these panels grant no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, including companies based in this country. The door is open exclusively to businesses based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it can award compensation of vast sums, potentially billions.

These sums represent not tangible damages but money the tribunal officials decide the company might otherwise have made. The administration may have to abandon its policy. It becomes discouraged from introducing similar legislation of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies observe each other, and investment funds finance suits in return for a share of the takings. The result? National sovereignty and democracy are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the rulings enacted by parliaments is that this provision has been written – without democratic mandate, and frequently under a climate of extreme secrecy – within trade treaties.

A Concrete Instance: The UK Coal Mine

Last year, a conservation group secured a significant win at the High Court. The presiding officer determined that plans to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on national carbon targets. The Labour government subsequently revoked the consent the former government had issued. Today, this legal outcome is under threat by an foreign court answering to exclusively the entities bringing the case.

Last August, a corporate entity whose ultimate owners reside in the tax haven initiated proceedings against the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

The claimant is litigating against the UK for the profits it would have generated if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. What legal team is acting on its behalf in opposition to the state? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a international entity disputes it through an undemocratic private court, and a sitting MP works for its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case to date, but it appears probable that he may employ the tribunal to challenge the sanctions the UK levied against him following the war in Ukraine. He has initiated proceedings against another European state on these grounds, claiming $16bn: equivalent to half of government’s yearly income. Among the counsel representing him there? the wife of a former prime minister, spouse of the previous PM.

International law scholars contend that the EU’s delay in using frozen Russian assets as collateral for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Escalating Costs

We were assured that these scenarios could not occur. In 2014, a senior politician, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to investment treaty upon trade deal and we have never seen a problem in the past.” An adviser on this topic labelled campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by such legal actions. Predictions that “as corporations grasp the power they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning has now materialised. In the current period, fossil fuel and mining firms have filed a historic level of suits against nations across the economic spectrum, opposing – similar to the Whitehaven project – official measures to halt climate breakdown. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained $84bn. That represents the combined GDP