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What is your reckon our democratic process operates? It could be something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills become law. The law is upheld by the courts. End of story. However, that was how it once functioned. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, international firms, and the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at private courts staffed by corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals grant no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses headquartered in this country. They are open only to businesses operating from foreign soil.

If a tribunal finds that a legislative action could harm the corporation’s projected profits, it can award financial penalties of vast sums, potentially billions.

These sums represent not tangible damages but funds the panel members decide the company might otherwise have made. The administration could be forced to abandon its policy. It is deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being initiated, as companies observe each other, and investment funds bankroll lawsuits in exchange for a portion of the takings. The consequence? National sovereignty and democracy are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the choices made by parliaments is that this clause has been inserted – absent public approval, and often in an atmosphere of profound opacity – within bilateral investment treaties.

A Concrete Instance: The Whitehaven Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer determined that schemes to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government later cancelled the consent the former government had approved. Today, this victory faces being overturned by an offshore tribunal answering to only the entities petitioning it.

Last August, a firm whose final controllers reside in the tax haven initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was set up to hear it.

The claimant is seeking compensation from the UK for the profits it might have made if the mine had been permitted to commence operations. The public has no clear indication how much this sum represents. Who is representing it challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the domestic court upholds it, then a foreign company disputes it through an secretive arbitration panel, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he may employ the tribunal to contest the sanctions the UK imposed on him after the war in Ukraine. He has filed a claim against Luxembourg with similar intent, seeking sixteen billion dollars: half that nation's yearly income. Included in the legal team representing him there? the wife of a former prime minister, married to the former British prime minister.

Trade specialists argue that the EU’s hesitation in utilising seized Russian assets as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, unaccountable authority over democratic administrations could be blocking the money Ukraine urgently requires.

Empty Promises and Escalating Risks

Politicians promised that such things could not occur. Years ago, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this issue accused activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “once firms grasp the power bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. This year, energy and mining firms have filed a record number of claims against nations across the economic spectrum, contesting – as in the case of the UK mine – state efforts to prevent climate breakdown. Firms have so far won $114bn via ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP