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What is your understand our democratic process functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills become law. The law are enforced by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Advent of Secret Arbitration Panels

Nowadays, foreign corporations, along with the billionaires who own them, are able to litigate against governments for the regulations they pass, at private courts staffed by corporate lawyers. The cases are conducted behind closed doors. Unlike our courts, these bodies provide no right of appeal or judicial review. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. The door is open solely for corporations registered abroad.

If a tribunal rules that a legislative action may compromise the corporation’s projected profits, it may order compensation of hundreds of millions of pounds, running into billions.

These sums represent not actual losses but funds the arbitrators conclude the company might otherwise have made. The government may have to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being filed, as companies observe each other, and investment funds finance suits in return for a share of the takings. The consequence? Democratic sovereignty and democratic governance are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the rulings enacted by legislatures is that this stipulation has been incorporated – absent public approval, and typically amid an atmosphere of extreme secrecy – inside international trade agreements.

A Specific Instance: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The judge found that proposals to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on our carbon budgets. The Labour government then withdrew the permission the Tories had granted. Now, this victory is under threat by an secret arbitration panel reporting to exclusively the entities filing the suit.

During August, a company whose beneficial owners are located in the Cayman Islands filed a lawsuit versus the UK government. Last week a arbitration panel in the US capital was convened to adjudicate on it.

The claimant is litigating against the UK for the profits it could have earned if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. What legal team is acting on its behalf in opposition to the state? An elected representative, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The government passes a law, the national judiciary supports it, then a foreign company contests it through an secretive offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the mining lawsuit was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case at present, but it seems likely that he’ll use the tribunal to contest the sanctions the UK levied against him following the war in Ukraine. He has initiated proceedings against another European state on these grounds, demanding a colossal sum: equivalent to half of state's yearly income. Among the counsel acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, unaccountable authority over elected governments might be preventing the funds Ukraine urgently requires.

Misleading Claims and Growing Threats

We were assured that these events could not occur. Previously, a former prime minister, promoting the biggest and most dangerous 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 issue labelled campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “when companies begin to understand the influence they’ve been granted, they will turn their attention from the weak nations to the developed economies” were dismissed with scepticism.

That threat has now materialised. In the current period, oil and gas and extraction companies have initiated a record number of suits against nations across the economic spectrum, challenging – like the example of the Whitehaven project – official measures to prevent environmental catastrophe. Corporations have thus far won vast sums through ISDS, of which energy giants have secured the majority. That represents the combined GDP