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How do you understand our democratic process functions? It could be similar to this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. That's it. Yet, that used to be how it operated in the past. Not anymore.

The Emergence of Secret Arbitration Panels

In the modern era, overseas companies, or the oligarchs who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted behind closed doors. In contrast to domestic courts, these tribunals allow no opportunity to appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even companies based in this country. They are open solely for entities registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s expected profits, it can award damages of hundreds of millions, potentially billions.

These awards constitute not real financial harm but compensation the arbitrators decide the company would perhaps have made. The administration might be compelled to abandon its policy. It is discouraged from passing future laws along the same lines, for fear of being sued.

A System Growing Exponentially

Unprecedented levels of disputes are being brought, as corporations observe each other, and hedge funds fund legal actions in return for a portion of the settlements. The consequence? Democratic sovereignty and popular rule are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the rulings taken by legislatures is that this clause has been inserted – without democratic mandate, and typically amid conditions of total confidentiality – within bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Last year, environmental campaigners won a great victory at the High Court. The judge determined that proposals to open the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine could have no consequence on national carbon targets. The incoming administration subsequently revoked the licence the previous administration had issued. Now, this success could be compromised by an offshore tribunal accountable to no one but the entities petitioning it.

In August, a firm whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. Last week a dispute settlement body in the United States was established to adjudicate on it.

The company is suing the UK for the revenue it might have made if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. What legal team is acting on its behalf against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The government passes a law, the national judiciary validates it, then a overseas corporation contests it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Case

On the same day that the tribunal on the coal mine dispute was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK enacted against him following the war in Ukraine. He has previously initiated proceedings against another European state for this reason, claiming sixteen billion dollars: half that government’s annual revenue. Included in the counsel on his side? Cherie Blair, wife of the former British prime minister.

International law scholars contend that the EU’s delay in using frozen oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that such things could not occur. Previously, a government leader, promoting the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter labelled activists of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about such legal actions. Warnings that “when companies begin to understand the authority they now possess, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat is now a reality. Recently, fossil fuel and mining firms have lodged a unprecedented number of claims against nations across the economic spectrum, opposing – like the example of the UK mine – official measures to stop environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured the majority. That equates to the combined GDP