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What is your understand our democratic process functions? Perhaps along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. The law are enforced by the courts. Simple as that. Well, that used to be how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Today, overseas companies, and the wealthy individuals behind them, can sue nation states for the laws they pass, at private courts made up of corporate lawyers. These proceedings are held in secret. In contrast to domestic courts, these tribunals provide no right of appeal or judicial review. The general public cannot take a case to them, nor can our government, or even enterprises operating from this country. Access is granted exclusively to entities operating from foreign soil.

When a secret court finds that a law or policy may compromise the corporation’s expected profits, it may order compensation of vast sums, potentially billions.

This compensation are based not on tangible damages but compensation the panel members determine the company might otherwise have made. The government may have to drop the legislation. It is deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Running Rampant

Record numbers of disputes are being initiated, as companies take cues from each other, and private equity finance suits in exchange for a cut of the takings. The outcome? National sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the decisions taken by parliaments is that this clause has been written – without democratic mandate, and frequently under an atmosphere of extreme secrecy – inside international trade agreements.

A Concrete Example: The Cumbrian Coal Mine

Last year, a conservation group secured a significant win at the senior court. The justice ruled that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have zero effect on our carbon budgets. The new government later cancelled the consent the previous administration had issued. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to no one but the entities filing the suit.

During August, a firm whose ultimate owners reside in the Cayman Islands filed a lawsuit challenging the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the profits it might have made if the mine had been permitted to go ahead. Citizens have no clear indication how much this could amount to. Who is representing it against the state? A sitting MP, and former attorney-general in the Conservative government, that great patriot the MP. The administration enacts a policy, the national judiciary validates it, then a international entity challenges it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the tribunal on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case to date, but it seems likely that he’ll use the arbitration process to contest the sanctions the UK enacted against him after the war in Ukraine. He has initiated proceedings against a small nation with similar intent, claiming $16bn: an amount representing half state's annual revenue. Among the counsel representing him there? the wife of a former prime minister, married to the previous PM.

Legal experts believe that the EU’s delay in using frozen state funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over sovereign states might be preventing the finance Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that these scenarios were not possible. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An expert on this matter accused activists of “alarmism … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “when companies begin to understand the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with scepticism.

That prediction has come to pass. Recently, energy and extraction companies have lodged a unprecedented number of suits against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – government attempts to prevent climate breakdown. Corporations have so far won $114bn through ISDS, of which energy giants have secured the majority. That equates to the combined GDP