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How do you reckon our democratic process operates? Perhaps along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills become law. Statutes is maintained by the courts. End of story. However, that’s how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, or the billionaires that control them, are able to litigate against elected administrations for the policies they pass, at private courts composed of business advocates. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies grant no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, or even businesses headquartered in this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel determines that a legislative action may compromise the corporation’s expected profits, it has the power to grant compensation of vast sums, even billions.

These sums constitute not tangible damages but funds the tribunal officials decide the company would perhaps have made. The state might be compelled to rescind the measure. It is discouraged from introducing similar legislation in that area, worried about facing litigation.

A Process Running Rampant

Unprecedented levels of cases are being brought, as firms learn from each other, and hedge funds bankroll lawsuits in return for a portion of the settlements. The result? Sovereignty and democracy are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the decisions made by legislatures is that this stipulation has been incorporated – absent public approval, and often in an atmosphere of extreme secrecy – into international trade agreements.

A Concrete Instance: The UK Coalmine

A year ago, activists won a great victory at the High Court. The judge found that proposals to excavate the first deep coalmine in the UK for three decades, in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The incoming administration subsequently revoked the consent the previous administration had approved. Now, this success faces being overturned by an secret arbitration panel answering to exclusively the companies filing the suit.

During August, a firm whose final controllers reside in the tax haven initiated proceedings challenging the UK government. Last week a tribunal in Washington DC was set up to adjudicate on it.

The company is suing the UK for the revenue it could have earned if the mine had received permission to proceed. The public has little idea how much this sum represents. What legal team is serving as its counsel against the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The state enacts a policy, the national judiciary supports it, then a international entity contests it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coal mine dispute was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows nothing of the case at present, but it is highly possible that he may employ the arbitration process to challenge the restrictions the UK enacted against him following the invasion of Ukraine. He has already started suing another European state on these grounds, seeking $16bn: an amount representing half government’s yearly budget. Included in the lawyers representing him there? a prominent lawyer, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Risks

Politicians promised that such things could not occur. Years ago, a senior politician, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade agreement upon trade deal and there has not been a problem in the past.” An adviser on this topic labelled activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by scepticism.

That prediction is now a reality. This year, fossil fuel and extraction companies have lodged a unprecedented number of claims against nations rich and poor, contesting – like the example of the Whitehaven project – government attempts to stop global warming. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That represents the combined GDP