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How do you reckon our democratic process works? Maybe along the lines of this. We elect MPs. They vote on bills. When a majority is secured, the bills are enacted as law. The law is maintained by the courts. End of story. Well, that’s how it operated in the past. Not anymore.

The Rise of Secret Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at private courts made up of commercial attorneys. The cases are conducted behind closed doors. Differing from national judiciaries, these bodies grant no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even companies based in this country. Access is granted exclusively to entities operating from foreign soil.

If a tribunal determines that a government measure might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, potentially billions.

This compensation represent not tangible damages but compensation the tribunal officials conclude the company would perhaps have made. The government may have to abandon its policy. It is discouraged from enacting future policies of a similar nature, for fear of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as firms learn from each other, and private equity fund legal actions in return for a portion of the settlements. The result? National sovereignty and popular rule are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the choices taken by legislatures is that this clause has been inserted – without public consent, and typically amid an atmosphere of total confidentiality – within trade treaties.

A Specific Case: The Cumbrian Coalmine

Last year, activists secured a significant win at the senior court. The presiding officer determined that plans to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The Labour government subsequently revoked the consent the former government had approved. Today, this legal outcome could be compromised by an offshore tribunal reporting to no one but the companies bringing the case.

During August, a corporate entity whose ultimate owners are based in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a arbitration panel in Washington DC was set up to adjudicate on it.

The company is seeking compensation from the UK for the money it might have made if the mine had received permission to go ahead. The public has no idea how much this sum represents. What legal team is acting on its behalf challenging the British government? An elected representative, and ex-law officer in the Conservative government, the noted patriot the MP. The administration passes a law, the domestic court upholds it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

On the same day that the court on the coal mine dispute was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it is highly possible that he will utilise the arbitration process to challenge the restrictions the UK levied against him subsequent to the war in Ukraine. He has previously started suing a small nation on these grounds, seeking $16bn: half that government’s yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, married to the former British prime minister.

Legal experts contend that the EU’s delay in utilising seized state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that these events could not occur. Previously, a government leader, championing the largest and riskiest of all investment pacts, stated: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this matter accused activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries needed to fear these lawsuits. Cautionary notes that “once firms grasp the influence bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were met with general mockery.

That threat has now materialised. Recently, oil and gas and mining firms have initiated a unprecedented number of cases against nations rich and poor, contesting – like the example of the UK mine – state efforts to prevent environmental catastrophe. Firms have to date won vast sums through ISDS, of which oil majors have obtained $84bn. That represents the combined GDP