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How do you perceive our democratic process works? Maybe along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that’s how it used to work. No longer.

The Rise of Secret Arbitration Panels

Today, international firms, and the billionaires behind them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals made up of business advocates. Such disputes take place away from public scrutiny. Unlike our courts, these tribunals grant no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, including enterprises headquartered in this country. They are open solely for businesses operating from foreign soil.

Should an arbitration panel rules that a law or policy might diminish the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation are based not on real financial harm but money the panel members decide the company might otherwise have made. The administration may have to drop the legislation. It becomes deterred from enacting future policies along the same lines, due to the risk of being sued.

A Mechanism Running Rampant

Historically high figures of cases are being brought, as firms take cues from each other, and hedge funds finance suits in exchange for a cut of the awards. The outcome? Sovereignty and democracy are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the rulings made by elected bodies is that this stipulation has been incorporated – without public consent, and frequently under conditions of profound opacity – within trade treaties.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer ruled that plans to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration later cancelled the consent the previous administration had granted. Currently, this victory faces being overturned by an offshore tribunal accountable to exclusively the entities petitioning it.

During August, a firm whose ultimate owners are located in the offshore financial centre initiated proceedings challenging the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this sum represents. Who is acting on its behalf against the British government? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the high court supports it, then a foreign company contests it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the coalmine case was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows scarce of the case to date, but it seems likely that he may employ the ISDS mechanism to fight the penalties the UK enacted against him after the invasion of Ukraine. He has previously started suing another European state for this reason, seeking sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the lawyers representing him there? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states might be preventing the funds Ukraine urgently requires.

Misleading Claims and Growing Risks

Politicians promised that such things were not possible. Previously, a government leader, championing the most significant and hazardous of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An adviser on this matter labelled activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “once firms grasp the power they’ve been granted, they will turn their attention from the weak nations to the developed economies” were greeted by general mockery.

That threat has come to pass. In the current period, fossil fuel and resource corporations have lodged a historic level of cases against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to halt global warming. Corporations have thus far won vast sums via ISDS, of which oil majors have secured the majority. That represents the combined GDP