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How do you perceive our democratic process works? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills become law. Statutes are enforced by the courts. End of story. Yet, that’s how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals that control them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels staffed by business advocates. Such disputes take place in secret. Differing from national judiciaries, these tribunals grant no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. They are open solely for corporations registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s projected profits, it may order damages of hundreds of millions, potentially billions.

This compensation are based not on tangible damages but funds the arbitrators conclude the company might otherwise have made. The administration may have to drop the legislation. It will be discouraged from passing future laws of a similar nature, for fear of facing litigation.

A Process Growing Exponentially

Historically high figures of disputes are being filed, as corporations take cues from each other, and private equity fund legal actions in return for a cut of the settlements. The consequence? Sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the decisions enacted by elected bodies is that this provision has been incorporated – without democratic mandate, and often in conditions of total confidentiality – within bilateral investment treaties.

A Specific Instance: The UK Coalmine

Last year, activists secured a significant win at the senior court. The judge determined that proposals to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have had no impact on national carbon targets. The Labour government subsequently revoked the permission the previous administration had approved. Now, this legal outcome is under threat by an foreign court reporting to no one but the companies bringing the case.

During August, a company whose final controllers are based in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had received permission to commence operations. The public has little idea how much this sum represents. Which individual is acting on its behalf in opposition to the state? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a overseas corporation contests it through an undemocratic private court, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

On the same day that the panel on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he will utilise the tribunal to fight the restrictions the UK levied against him after the war in Ukraine. He has filed a claim against Luxembourg for this reason, seeking sixteen billion dollars: half that nation's yearly budget. Included in the legal team acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states may be obstructing the money Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has not been a case in the past.” A consultant on this issue described critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about such legal actions. Predictions that “as corporations begin to understand the power they now possess, they will shift their focus from the weak nations to the developed economies” were met with widespread derision.

That threat has come to pass. In the current period, oil and gas and extraction companies have filed a historic level of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP