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Can you perceive our democratic process functions? It could be something like this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Advent of Secret Arbitration Panels

Today, foreign corporations, along with the oligarchs that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals made up of corporate lawyers. Such disputes are held away from public scrutiny. In contrast to domestic courts, these tribunals provide no opportunity to appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even businesses headquartered in this country. Access is granted solely for entities operating from foreign soil.

When a secret court finds that a government measure might diminish the corporation’s anticipated profits, it has the power to grant compensation of vast sums, running into billions.

These sums represent not actual losses but funds the panel members decide the company might otherwise have made. The state might be compelled to drop the legislation. It is discouraged from passing future laws along the same lines, due to the risk of facing litigation.

A Process Growing Exponentially

Historically high figures of cases are being initiated, as corporations observe each other, and investment funds fund legal actions for a share of a cut of the settlements. The consequence? National sovereignty and popular rule are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices enacted by legislatures is that this clause has been written – without democratic mandate, and typically amid an atmosphere of extreme secrecy – into international trade agreements.

A Real-World Case: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the High Court. The justice determined that proposals to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine would have no consequence on our carbon budgets. The new government then withdrew the permission the Tories had approved. Currently, this legal outcome faces being overturned by an secret arbitration panel reporting to no one but the corporations bringing the case.

During August, a corporate entity whose beneficial owners reside in the Cayman Islands filed a lawsuit versus the UK government. Last week a dispute settlement body in the US capital was set up to consider the case.

This firm is suing the UK for the revenue it could have earned if the mine had received permission to proceed. Citizens have no clear indication how much this sum represents. Who is serving as its counsel in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The administration passes a law, the national judiciary supports it, then a foreign company disputes it through an unaccountable arbitration panel, and a elected official acts on its behalf.

The Russian Case

On the same day that the court on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case at present, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has filed a claim against another European state for this reason, demanding a colossal sum: equivalent to half of nation's annual revenue. Part of the counsel acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in utilising seized state funds as security for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these scenarios could not occur. In 2014, a former prime minister, advocating for the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade deal upon trade deal and there has not been a issue in the past.” An adviser on this topic described activists of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “as corporations grasp the power they’ve been granted, they will shift their focus from the weak nations to the strong ones” were met with general mockery.

That prediction is now a reality. In the current period, oil and gas and extraction companies have initiated a record number of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to halt environmental catastrophe. Firms have thus far won $114bn via ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP