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Can you perceive our democratic process operates? It could be something like this. We elect MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. End of story. Well, that was how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, or the billionaires behind them, can sue nation states for the policies they pass, at offshore tribunals made up of commercial attorneys. Such disputes take place away from public scrutiny. In contrast to domestic courts, these bodies grant no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open exclusively to businesses based overseas.

If a tribunal finds that a government measure could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, running into billions.

This compensation constitute not real financial harm but funds the tribunal officials determine the company might otherwise have made. The government could be forced to drop the legislation. It will be deterred from introducing similar legislation in that area, for fear of facing litigation.

A System Growing Exponentially

Unprecedented levels of disputes are being initiated, as corporations take cues from each other, and hedge funds finance suits in exchange for a cut of the settlements. The result? National sovereignty and democratic governance are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the rulings enacted by legislatures is that this stipulation has been written – absent public approval, and frequently under an atmosphere of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The UK Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The justice ruled that schemes to open the first major coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The new government later cancelled the permission the previous administration had granted. Now, this victory could be compromised by an foreign court accountable to no one but the companies filing the suit.

Last August, a firm whose final controllers are located in the offshore financial centre lodged a claim against the UK government. The previous week a dispute settlement body in the United States was established to hear it.

This firm is suing the UK for the profits it could have earned if the mine had received permission to go ahead. We have no idea how much this could amount to. What legal team is representing it in opposition to the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the high court validates it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the court on the coal mine dispute was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case to date, but it seems likely that he may employ the arbitration process to contest the sanctions the UK imposed on him following the Russian aggression. He has already started suing another European state with similar intent, seeking a colossal sum: half that state's yearly budget. Among the counsel on his side? Cherie Blair, spouse of the ex-UK leader.

International law scholars argue that the EU’s procrastination in using frozen state funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over sovereign states might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that these scenarios were not possible. Previously, a government leader, advocating for the biggest and most dangerous of all these agreements, declared: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An expert on this topic labelled campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about ISDS claims. Predictions that “as corporations grasp the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were met with widespread derision.

That warning is now a reality. In the current period, oil and gas and resource corporations have filed a unprecedented number of claims against nations across the economic spectrum, contesting – similar to the UK mine – government attempts to stop global warming. Firms have so far won vast sums through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP