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How do you understand our democratic process operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. The law are enforced by the courts. That's it. Well, that’s how it used to work. No longer.

The Rise of Offshore Arbitration Panels

Today, international firms, and the oligarchs who own them, have the power to sue nation states for the policies they pass, at offshore tribunals staffed by commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies grant no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even companies based in this country. The door is open only to corporations operating from foreign soil.

Should an arbitration panel finds that a government measure may compromise the corporation’s anticipated profits, it may order compensation of vast sums, even billions.

These awards are based not on actual losses but compensation the tribunal officials determine the company would perhaps have made. The state might be compelled to drop the legislation. It is discouraged from passing future laws along the same lines, worried about incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being filed, as firms take cues from each other, and hedge funds finance suits in return for a portion of the takings. The consequence? Democratic sovereignty and democratic governance are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the choices taken by parliaments is that this provision has been written – without public consent, and often in an atmosphere of extreme secrecy – within trade treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, a conservation group achieved a major legal triumph at the High Court. The justice found that plans to excavate the first new deep coal mine in the UK for 30 years, in northwest England, had been illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have no impact on national carbon targets. The new government later cancelled the consent the former government had granted. Currently, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the entities filing the suit.

In August, a corporate entity whose beneficial owners are based in the Cayman Islands filed a lawsuit against the UK government. Recently a dispute settlement body in Washington DC was convened to adjudicate on it.

This firm is litigating against the UK for the money it might have made if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. What legal team is representing it against the state? An elected representative, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The state passes a law, the domestic court supports it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case to date, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK levied against him after the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, seeking sixteen billion dollars: an amount representing half state's yearly budget. Included in the lawyers on his side? Cherie Blair, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen Russian assets as security for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over democratic administrations could be blocking the finance Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that these scenarios could not occur. In 2014, a senior politician, advocating for the most significant and hazardous of all these agreements, declared: “Britain has agreed to trade deal upon trade deal and there has never been a case in the past.” A consultant on this topic labelled campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “once firms start to realise the authority they now possess, they will shift their focus from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction has now materialised. Recently, fossil fuel and resource corporations have initiated a unprecedented number of claims against nations rich and poor, contesting – similar to the Whitehaven project – state efforts to prevent global warming. Corporations have so far won $114bn via ISDS, of which oil majors have been awarded the majority. That represents the combined GDP