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Can you reckon our system of government functions? Perhaps similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. End of story. However, that used to be how it used to work. Not anymore.

The Emergence of Secret Arbitration Panels

Nowadays, foreign corporations, and the billionaires who own them, are able to litigate against governments for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are conducted behind closed doors. In contrast to domestic courts, these bodies provide no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including companies based in this country. They are open exclusively to corporations registered abroad.

When a secret court finds that a government measure might diminish the corporation’s projected profits, it can award financial penalties of hundreds of millions, potentially billions.

These awards represent not actual losses but funds the tribunal officials determine the company would perhaps have made. The state might be compelled to drop the legislation. It is deterred from passing future laws in that area, worried about facing litigation.

A Process Spiralling Out of Control

Record numbers of cases are being initiated, as companies learn from each other, and investment funds fund legal actions in exchange for a cut of the awards. The result? Democratic sovereignty and democratic governance are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the choices taken by legislatures is that this provision has been inserted – absent public approval, and typically amid conditions of total confidentiality – into trade treaties.

A Real-World Example: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the senior court. The judge found that schemes to excavate the first major coal mine in the UK for 30 years, in northwest England, had been illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine would have no consequence on our carbon budgets. The incoming administration later cancelled the permission the Tories had issued. Today, this legal outcome is under threat by an offshore tribunal answering to no one but the companies filing the suit.

In August, a corporate entity whose final controllers are located in the tax haven filed a lawsuit versus the UK government. The previous week a tribunal in the United States was established to hear it.

This firm is suing the UK for the revenue it could have earned if the mine had been allowed to proceed. We have no clear indication how much this could amount to. Who is representing it in opposition to the British government? A member of parliament, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The government makes a decision, the national judiciary supports it, then a foreign company contests it through an undemocratic private court, and a elected official represents its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case so far, but it is highly possible that he’ll use the tribunal to contest the restrictions the UK imposed on him after the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, seeking a colossal sum: half that government’s yearly budget. Included in the counsel acting for him in that case? Cherie Blair, married to the previous PM.

Legal experts contend that the EU’s hesitation in leveraging immobilised Russian assets as security for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that these scenarios wouldn’t happen. In 2014, a senior politician, promoting the most significant and hazardous of all these agreements, stated: “We’ve signed investment treaty after trade deal and we have never seen a case in the past.” A consultant on this topic described campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “as corporations start to realise the influence they now possess, they will redirect their efforts from the poorer states to the developed economies” were greeted by widespread derision.

That threat is now a reality. This year, energy and extraction companies have initiated a historic level of suits against nations across the economic spectrum, contesting – similar to the UK mine – state efforts to stop global warming. Firms have so far won vast sums by using ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP