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How do you reckon our democratic process operates? Perhaps something like this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that was how it operated in the past. No longer.

The Emergence of Secret Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at offshore tribunals staffed by business advocates. Such disputes take place behind closed doors. Unlike our courts, these panels allow no right of appeal or judicial review. The general public cannot take a case to them, just as our government, or even enterprises operating from this country. They are open exclusively to entities operating from foreign soil.

When a secret court determines that a law or policy may compromise the corporation’s projected profits, it can award damages of hundreds of millions, even billions.

These awards are based not on actual losses but compensation the panel members determine the company could potentially have made. The government could be forced to drop the legislation. It is discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as corporations observe each other, and hedge funds finance suits in exchange for a cut of the takings. The result? Sovereignty and popular rule are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the decisions made by elected bodies is that this clause has been written – without public consent, and frequently under conditions of total confidentiality – into international trade agreements.

A Concrete Example: The Cumbrian Coalmine

A year ago, activists won a great victory at the senior court. The judge determined that plans to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had accepted the questionable argument that the mine would have had no consequence on climate commitments. The new government later cancelled the permission the previous administration had granted. Today, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the companies bringing the case.

In August, a corporate entity whose ultimate owners are based in the tax haven initiated proceedings challenging the UK government. Recently a arbitration panel in the US capital was set up to consider the case.

This firm is litigating against the UK for the money it could have earned if the mine had been permitted to commence operations. Citizens have no idea how much this might be. Who is acting on its behalf in opposition to the UK administration? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state makes a decision, the domestic court validates it, then a foreign company challenges it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Case

Concurrently that the tribunal on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case at present, but it seems likely that he may employ the tribunal to challenge the restrictions the UK imposed on him following the invasion of Ukraine. He has previously filed a claim against a small nation on these grounds, seeking $16bn: half that government’s yearly income. Among the lawyers acting for him in that case? Cherie Blair, spouse of the ex-UK leader.

International law scholars believe that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations could be blocking the finance Ukraine desperately needs.

False Assurances and Growing Threats

The public was told that these scenarios were not possible. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” An adviser on this issue accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states had to worry about these lawsuits. Warnings that “when companies grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were met with scepticism.

That threat has now materialised. Recently, fossil fuel and resource corporations have filed a historic level of cases against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – state efforts to prevent global warming. Companies have to date won $114bn via ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP