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What is your perceive our democratic process functions? Maybe similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. However, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals behind them, can sue elected administrations for the policies they pass, at private courts composed of business advocates. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, including businesses operating from this country. The door is open solely for businesses operating from foreign soil.

If a tribunal finds that a legislative action might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

These sums represent not real financial harm but compensation the tribunal officials decide the company could potentially have made. The state could be forced to drop the legislation. It becomes hesitant to introducing similar legislation in that area, worried about incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of cases are being initiated, as corporations learn from each other, and hedge funds fund legal actions for a share of a portion of the settlements. The outcome? National sovereignty and democracy are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the rulings enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid an atmosphere of profound opacity – into international trade agreements.

A Real-World Case: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The justice found that schemes to dig the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have had no consequence on climate commitments. The Labour government later cancelled the permission the former government had approved. Currently, this success faces being overturned by an secret arbitration panel reporting to exclusively the entities bringing the case.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands initiated proceedings versus the UK government. Last week a dispute settlement body in Washington DC was convened to adjudicate on it.

The company is suing the UK for the profits it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Which individual is serving as its counsel in opposition to the British government? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a international entity challenges it through an undemocratic private court, and a sitting MP works for its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case at present, but it seems likely that he will utilise the ISDS mechanism to fight the sanctions the UK imposed on him after the invasion of Ukraine. He has initiated proceedings against a small nation on these grounds, demanding a colossal sum: an amount representing half nation's annual revenue. Among the legal team acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized state funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine urgently requires.

Empty Promises and Escalating Costs

We were assured that these events were not possible. Previously, a senior politician, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and we have never seen a issue in the past.” An adviser on this issue described critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms start to realise the authority they now possess, they will turn their attention from the vulnerable countries to the strong ones” were greeted by general mockery.

That prediction is now a reality. In the current period, fossil fuel and resource corporations have filed a unprecedented number of cases against nations rich and poor, challenging – like the example of the Whitehaven project – official measures to stop environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP