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Can you perceive our democratic process works? It could be something like this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Legislation is maintained by the courts. Simple as that. Yet, that’s how it used to work. Those days are over.

The Emergence of Secret Arbitration Panels

Nowadays, international firms, or the oligarchs who own them, have the power to sue nation states for the regulations they pass, at offshore tribunals composed of commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these bodies grant no avenue for appeal or oversight by judges. You or I cannot take a case to them, just as our government, or even enterprises headquartered in this country. The door is open solely for entities registered abroad.

If a tribunal rules that a law or policy could harm the corporation’s projected profits, it can award financial penalties of hundreds of millions, running into billions.

These sums constitute not real financial harm but funds the panel members decide the company could potentially have made. The state may have to rescind the measure. It will be discouraged from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Running Rampant

Record numbers of cases are being brought, as firms learn from each other, and hedge funds finance suits in exchange for a cut of the takings. The consequence? Sovereignty and popular rule are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the rulings made by legislatures is that this stipulation has been inserted – absent public approval, and frequently under an atmosphere of profound opacity – into international trade agreements.

A Specific Example: The Whitehaven Coalmine

Last year, environmental campaigners secured a significant win at the senior court. The judge determined that plans to dig the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no consequence on our carbon budgets. The Labour government later cancelled the consent the Tories had granted. Currently, this success could be compromised by an foreign court reporting to no one but the companies filing the suit.

During August, a company whose beneficial owners reside in the Cayman Islands filed a lawsuit versus the UK government. The previous week a arbitration panel in Washington DC was set up to hear it.

The company is litigating against the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has no clear indication how much this sum represents. Who is representing it challenging the British government? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the domestic court upholds it, then a international entity challenges it through an unaccountable arbitration panel, and a elected official represents its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case so far, but it seems likely that he will utilise the arbitration process to challenge the penalties the UK levied against him following the war in Ukraine. He has previously filed a claim against another European state on these grounds, seeking a colossal sum: equivalent to half of state's annual revenue. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Legal experts argue that the EU’s procrastination in using frozen Russian assets as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over democratic administrations might be preventing the finance Ukraine critically depends on.

Misleading Claims and Growing Costs

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, championing the largest and riskiest of all such treaties, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” A consultant on this issue labelled activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about these lawsuits. Warnings that “once firms start to realise the power they’ve been granted, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That prediction has now materialised. This year, oil and gas and extraction companies have initiated a historic level of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – official measures to prevent global warming. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP