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Can you reckon our democratic process works? Maybe similar to this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Legislation are enforced by the courts. End of story. Well, that used to be how it operated in the past. Those days are over.

The Emergence of Secret Arbitration Panels

Nowadays, foreign corporations, and the wealthy individuals that control them, can sue nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes take place away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even enterprises operating from this country. Access is granted solely for entities registered abroad.

If a tribunal rules that a legislative action may compromise the corporation’s expected profits, it can award compensation of vast sums, potentially billions.

These sums constitute not tangible damages but compensation the tribunal officials decide the company might otherwise have made. The government could be forced to drop the legislation. It is discouraged from passing future laws of a similar nature, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being initiated, as companies learn from each other, and investment funds finance suits in exchange for a portion of the awards. The result? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices made by elected bodies is that this stipulation has been written – without public consent, and often in a climate of profound opacity – within bilateral investment treaties.

A Specific Example: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The justice ruled that proposals to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have had zero effect on climate commitments. The new government subsequently revoked the permission the former government had granted. Currently, this legal outcome is under threat by an foreign court reporting to only the companies petitioning it.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands lodged a claim versus the UK government. The previous week a arbitration panel in Washington DC was set up to consider the case.

This firm is litigating against the UK for the profits it might have made if the mine had been permitted to proceed. The public has little idea how much this sum represents. Which individual is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The administration enacts a policy, the national judiciary validates it, then a foreign company contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

A Sanctions Challenge

On the same day that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case to date, but it appears probable that he will utilise the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has started suing another European state with similar intent, seeking $16bn: half that nation's annual revenue. Included in the legal team on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts argue that the EU’s delay in utilising seized state funds as collateral for its aid for Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the finance Ukraine urgently requires.

Misleading Claims and Escalating Risks

The public was told that such things wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” A consultant on this matter labelled activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms grasp the authority they now possess, they will shift their focus from the poorer states to the wealthy nations” were dismissed with general mockery.

That warning has now materialised. In the current period, fossil fuel and resource corporations have filed a historic level of suits against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – state efforts to prevent climate breakdown. Corporations have thus far won $114bn via ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP