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Can you reckon our democratic process operates? It could be similar to this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. However, that was how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals that control them, can sue governments for the policies they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are conducted in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses operating from this country. The door is open exclusively to corporations registered abroad.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions, potentially billions.

These awards are based not on actual losses but compensation the panel members decide the company could potentially have made. The administration could be forced to rescind the measure. It becomes discouraged from enacting future policies in that area, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of cases are being brought, as companies learn from each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The consequence? National sovereignty and democratic governance are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings taken by parliaments is that this stipulation has been written – without public consent, and often in a climate of extreme secrecy – into trade treaties.

A Concrete Example: The Cumbrian Coal Mine

A year ago, a conservation group achieved a major legal triumph at the high court. The judge found that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on national carbon targets. The incoming administration later cancelled the consent the Tories had approved. Today, this victory faces being overturned by an secret arbitration panel answering to no one but the entities filing the suit.

In August, a company whose beneficial owners are located in the tax haven lodged a claim challenging the UK government. Last week a tribunal in Washington DC was set up to adjudicate on it.

This firm is suing the UK for the money it could have earned if the mine had been permitted to go ahead. The public has no clear indication how much this sum represents. What legal team is acting on its behalf against the UK administration? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary validates it, then a international entity challenges it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coalmine case was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case so far, but it seems likely that he may employ the arbitration process to challenge the penalties the UK imposed on him following the Russian aggression. He has started suing another European state on these grounds, claiming $16bn: an amount representing half government’s yearly income. Part of the lawyers on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars contend that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Escalating Threats

The public was told that these events wouldn’t happen. Previously, a government leader, championing the largest and riskiest of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An expert on this topic accused activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “as corporations grasp the influence they now possess, they will shift their focus from the weak nations to the strong ones” were dismissed with general mockery.

That prediction has now materialised. In the current period, energy and mining firms have filed a historic level of cases against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – official measures to halt climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP