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What is your reckon our democratic process operates? Perhaps along the lines of this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals who own them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels composed of business advocates. The cases are held away from public scrutiny. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. The general public cannot take a case to them, and neither can our government, or even enterprises operating from this country. Access is granted only to corporations based overseas.

Should an arbitration panel determines that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

These sums constitute not real financial harm but compensation the panel members conclude the company could potentially have made. The administration could be forced to rescind the measure. It will be deterred from introducing similar legislation along the same lines, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of legal actions are being brought, as corporations take cues from each other, and private equity fund legal actions for a share of a cut of the settlements. The consequence? Democratic sovereignty and democratic governance are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the decisions taken by parliaments is that this clause has been inserted – without democratic mandate, and typically amid conditions of profound opacity – inside trade treaties.

A Specific Case: The Cumbrian Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice ruled that proposals to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government subsequently revoked the permission the Tories had issued. Now, this success faces being overturned by an offshore tribunal accountable to only the companies filing the suit.

During August, a firm whose ultimate owners are located in the Cayman Islands initiated proceedings versus the UK government. The previous week a arbitration panel in the United States was set up to hear it.

The claimant is suing the UK for the revenue it would have generated if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. What legal team is representing it in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the noted patriot the MP. The government passes a law, the national judiciary supports it, then a foreign company contests it through an undemocratic arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case so far, but it appears probable that he will utilise the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the war in Ukraine. He has started suing another European state with similar intent, seeking $16bn: half that government’s yearly budget. Among the legal team on his side? Cherie Blair, married to the previous PM.

Legal experts contend that the EU’s delay in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states might be preventing the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

The public was told that these scenarios could not occur. Years ago, a government leader, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement upon trade deal and there has not been a problem in the past.” A consultant on this topic accused activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies grasp the authority they now possess, they will shift their focus from the weak nations to the strong ones” were dismissed with general mockery.

That warning has now materialised. This year, energy and resource corporations have initiated a historic level of claims against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Firms have so far won $114bn via ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP