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How do you understand our democratic process works? It could be along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Legislation is upheld by the courts. Simple as that. Yet, that’s how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

In the modern era, foreign corporations, and the oligarchs behind them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes are conducted in secret. In contrast to domestic courts, these panels allow no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises operating from this country. They are open exclusively to corporations registered abroad.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it can award compensation of vast sums, potentially billions.

These awards represent not actual losses but money the tribunal officials determine the company might otherwise have made. The government might be compelled to drop the legislation. It is discouraged from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Historically high figures of legal actions are being initiated, as firms learn from each other, and private equity bankroll lawsuits in exchange for a cut of the awards. The consequence? Sovereignty and democracy are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the decisions enacted by elected bodies is that this clause has been inserted – absent public approval, and often in an atmosphere of total confidentiality – within trade treaties.

A Real-World Example: The UK Coal Mine

Last year, activists won a great victory at the High Court. The judge ruled that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government subsequently revoked the consent the former government had granted. Today, this legal outcome could be compromised by an secret arbitration panel answering to only the companies bringing the case.

In August, a company whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. Recently a dispute settlement body in the United States was convened to consider the case.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to commence operations. The public has little idea how much this might be. Who is representing it challenging the state? A sitting MP, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The state makes a decision, the national judiciary supports it, then a overseas corporation challenges it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Case

Concurrently that the court on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case at present, but it is highly possible that he’ll use the tribunal to challenge the penalties the UK enacted against him following the war in Ukraine. He has filed a claim against another European state on these grounds, claiming sixteen billion dollars: equivalent to half of government’s annual revenue. Part of the lawyers representing him there? Cherie Blair, wife of the previous PM.

International law scholars argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments could be blocking the money Ukraine critically depends on.

Empty Promises and Growing Threats

The public was told that these events were not possible. Years ago, a former prime minister, advocating for the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade deal upon trade deal and there has never been a case in the past.” A consultant on this issue described critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “when companies grasp the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by general mockery.

That prediction is now a reality. In the current period, fossil fuel and extraction companies have initiated a unprecedented number of cases against nations rich and poor, challenging – as in the case of the UK mine – government attempts to stop climate breakdown. Firms have so far won vast sums via ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP