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Can you reckon our democratic process works? Perhaps something like this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Well, that was how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

Today, foreign corporations, and the wealthy individuals behind them, are able to litigate against governments for the regulations they pass, at offshore tribunals staffed by business advocates. These proceedings are conducted behind closed doors. In contrast to domestic courts, these tribunals allow no opportunity to appeal or legal review. The general public are barred from bringing a case to them, just as our government, including enterprises headquartered in this country. The door is open solely for businesses operating from foreign soil.

When a secret court finds that a government measure could harm the corporation’s projected profits, it can award financial penalties of vast sums, potentially billions.

This compensation constitute not tangible damages but compensation the tribunal officials determine the company would perhaps have made. The state might be compelled to abandon its policy. It will be discouraged from introducing similar legislation in that area, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as firms observe each other, and hedge funds finance suits in return for a portion of the settlements. The result? Sovereignty and democracy are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the choices enacted by legislatures is that this clause has been inserted – absent public approval, and often in a climate of total confidentiality – inside bilateral investment treaties.

A Concrete Example: The Whitehaven Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The presiding officer found that plans to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have had no impact on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had approved. Now, this victory faces being overturned by an offshore tribunal reporting to only the companies bringing the case.

Last August, a corporate entity whose beneficial owners are located in the offshore financial centre filed a lawsuit against the UK government. Last week a dispute settlement body in the United States was established to consider the case.

The company is suing the UK for the revenue it would have generated if the mine had been allowed to commence operations. Citizens have no clear indication how much this could amount to. Which individual is representing it in opposition to the UK administration? A sitting MP, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The administration enacts a policy, the national judiciary validates it, then a international entity challenges it through an secretive arbitration panel, and a sitting MP works for its behalf.

The Russian Lawsuit

Concurrently that the court on the mining lawsuit was convened, we learned 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 to date, but it is highly possible that he will utilise the ISDS mechanism to contest the restrictions the UK levied against him after the Russian aggression. He has previously filed a claim against Luxembourg for this reason, demanding sixteen billion dollars: equivalent to half of government’s yearly income. Part of the counsel on his side? Cherie Blair, wife of the previous PM.

Trade specialists contend that the EU’s procrastination in leveraging immobilised state funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.

Misleading Claims and Growing Costs

We were assured that these scenarios could not occur. In 2014, 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 there has never been a problem in the past.” An expert on this topic described critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations had to worry about such legal actions. Cautionary notes that “once firms begin to understand the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning has come to pass. This year, energy and extraction companies have initiated a historic level of claims against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – state efforts to halt climate breakdown. Companies have to date won $114bn by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP