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What is your understand our democratic process functions? Perhaps along the lines of this. We elect MPs. They legislate on bills. If a majority is achieved, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that’s how it operated in the past. Not anymore.

The Advent of Shadow Arbitration Panels

In the modern era, foreign corporations, and the billionaires who own them, are able to litigate against governments for the regulations they pass, at private courts staffed by corporate lawyers. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these bodies grant no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, including enterprises operating from this country. The door is open exclusively to entities registered abroad.

If a tribunal determines that a government measure might diminish the corporation’s expected profits, it may order financial penalties of vast sums, potentially billions.

These awards are based not on real financial harm but compensation the panel members determine the company might otherwise have made. The administration may have to drop the legislation. It is deterred from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as firms observe each other, and investment funds bankroll lawsuits in exchange for a cut of the settlements. The outcome? National sovereignty and popular rule are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices taken by legislatures is that this stipulation has been inserted – without democratic mandate, and often in conditions of total confidentiality – within trade treaties.

A Specific Example: The UK Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The judge determined that proposals to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had approved. Now, this victory could be compromised by an secret arbitration panel accountable to only the companies bringing the case.

During August, a company whose beneficial owners are located in the Cayman Islands filed a lawsuit challenging the UK government. Last week a dispute settlement body in the US capital was set up to hear it.

The company is suing the UK for the money it would have generated if the mine had received permission to proceed. The public has no idea how much this might be. Who is acting on its behalf against the British government? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The state enacts a policy, the national judiciary validates it, then a foreign company disputes it through an undemocratic private court, and a member of our parliament represents its behalf.

The Russian Challenge

On the same day that the court on the mining lawsuit was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case at present, but it is highly possible that he may employ the arbitration process to challenge the sanctions the UK imposed on him following the invasion of Ukraine. He has already initiated proceedings against another European state on these grounds, claiming a colossal sum: half that government’s annual revenue. Part of the lawyers acting for him in that case? Cherie Blair, spouse of the former British prime minister.

Legal experts believe that the EU’s delay in utilising seized oligarchs' funds as collateral for its financial support package stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states might be preventing the funds Ukraine urgently requires.

Empty Promises and Escalating Risks

We were assured that these scenarios were not possible. In 2014, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade agreement upon trade deal and there has not been a problem in the past.” An adviser on this topic accused critics of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries had to worry about ISDS claims. Warnings that “once firms start to realise the influence they now possess, they will redirect their efforts from the poorer states to the strong ones” were greeted by general mockery.

That prediction has now materialised. In the current period, oil and gas and extraction companies have initiated a record number of claims against nations rich and poor, challenging – as in the case of the Whitehaven project – state efforts to halt global warming. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP