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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 obtained, the bills are enacted as law. The law is maintained by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Emergence of Offshore Arbitration Panels

In the modern era, international firms, along with the oligarchs behind them, are able to litigate against nation states for the laws they pass, at secret arbitration panels staffed by business advocates. The cases are conducted in secret. Differing from national judiciaries, these bodies provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even companies operating from this country. The door is open exclusively to businesses based overseas.

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

These awards represent not actual losses but funds the tribunal officials determine the company could potentially have made. The state could be forced to abandon its policy. It becomes discouraged from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of disputes are being brought, as firms observe each other, and private equity fund legal actions in return for a portion of the awards. The outcome? National sovereignty and popular rule are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the choices enacted by parliaments is that this clause has been inserted – without public consent, and typically amid conditions of total confidentiality – into trade treaties.

A Real-World Instance: The UK Coal Mine

Last year, a conservation group won a great victory at the High Court. The justice ruled that schemes to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine would have had no impact on national carbon targets. The new government then withdrew the licence the Tories had approved. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to exclusively the companies bringing the case.

In August, a corporate entity whose ultimate owners reside in the Cayman Islands filed a lawsuit against the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

The claimant is litigating against the UK for the profits it would have generated if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. Who is acting on its behalf challenging the state? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the domestic court supports it, then a international entity challenges it through an undemocratic private court, and a sitting MP works for its behalf.

An Oligarch's Case

Concurrently that the court on the mining lawsuit was established, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are little of the case so far, but it is highly possible that he’ll use the ISDS mechanism to challenge the sanctions the UK imposed on him after the war in Ukraine. He has initiated proceedings against a small nation for this reason, demanding $16bn: half that nation's yearly income. Included in the counsel on his side? Cherie Blair, married to the former British prime minister.

International law scholars believe that the EU’s hesitation in leveraging immobilised state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Mounting Risks

The public was told that these scenarios could not occur. In 2014, a government leader, championing the largest and riskiest of all investment pacts, stated: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this issue labelled campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations needed to fear ISDS claims. Warnings that “as corporations start to realise the power they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning has come to pass. Recently, oil and gas and mining firms have filed a unprecedented number of suits against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured $84bn. That represents the combined GDP