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Can you perceive our system of government operates? Maybe something like this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. Well, that’s how it once functioned. No longer.

The Emergence of Secret Arbitration Panels

Nowadays, international firms, or the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at offshore tribunals made up of commercial attorneys. Such disputes are held behind closed doors. Differing from national judiciaries, these tribunals provide no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even businesses based in this country. Access is granted exclusively to corporations operating from foreign soil.

When a secret court determines that a legislative action might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, even billions.

These sums represent not tangible damages but funds the tribunal officials decide the company would perhaps have made. The government might be compelled to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations learn from each other, and private equity fund legal actions for a share of a portion of the awards. The result? Democratic sovereignty and democratic governance are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can supersede national legislation and the choices taken by parliaments is that this stipulation has been written – absent public approval, and typically amid a climate of profound opacity – within international trade agreements.

A Real-World Case: The UK Coal Mine

Last year, a conservation group won a great victory at the high 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 previous government, which had accepted the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration then withdrew the permission the previous administration had granted. Today, this success could be compromised by an offshore tribunal answering to no one but the entities bringing the case.

In August, a company whose final controllers are based in the tax haven filed a lawsuit versus the UK government. Last week a arbitration panel in the United States was established to consider the case.

This firm is suing the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have no idea how much this could amount to. Who is representing it challenging the state? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government passes a law, the high court supports it, then a overseas corporation contests it through an undemocratic arbitration panel, and a elected official represents its behalf.

A Sanctions Case

On the same day that the panel on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case at present, but it is highly possible that he’ll use the arbitration process to challenge the sanctions the UK enacted against him following the invasion of Ukraine. He has already started suing a small nation for this reason, demanding sixteen billion dollars: equivalent to half of state's yearly income. Part of the legal team on his side? Cherie Blair, married to the former British prime minister.

Trade specialists contend that the EU’s hesitation in using frozen state funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations could be blocking the funds Ukraine critically depends on.

Empty Promises and Mounting Threats

The public was told that such things wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” An adviser on this issue labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms begin to understand the influence they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were greeted by widespread derision.

That warning has now materialised. This year, energy and extraction companies have lodged a record number of suits against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – official measures to stop global warming. Firms have thus far won vast sums via ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP