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What is your perceive our democratic process functions? It could be something like this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that’s how it operated in the past. No longer.

The Rise of Shadow Arbitration Panels

Today, overseas companies, or the oligarchs behind them, can sue elected administrations for the laws they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are held behind closed doors. In contrast to domestic courts, these bodies allow no avenue for appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. Access is granted exclusively to businesses based overseas.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it may order damages of hundreds of millions of pounds, even billions.

This compensation constitute not real financial harm but funds the panel members conclude the company could potentially have made. The state might be compelled to rescind the measure. It will be deterred from passing future laws along the same lines, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of legal actions are being brought, as corporations take cues from each other, and investment funds finance suits for a share of a cut of the settlements. The consequence? Sovereignty and democracy are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the rulings made by elected bodies is that this provision has been incorporated – without democratic mandate, and often in a climate of total confidentiality – inside trade treaties.

A Concrete Example: The UK Coalmine

Last year, activists achieved a major legal triumph at the High Court. The justice determined that proposals to excavate the first major coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The new government later cancelled the permission the Tories had granted. Today, this success faces being overturned by an secret arbitration panel accountable to only the corporations petitioning it.

In August, a corporate entity whose ultimate owners are based in the Cayman Islands lodged a claim against the UK government. The previous week a dispute settlement body in the United States was convened to consider the case.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to go ahead. Citizens have little idea how much this might be. Who is serving as its counsel in opposition to the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The government enacts a policy, the domestic court upholds it, then a overseas corporation contests it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coal mine dispute was convened, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case at present, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK imposed on him after the invasion of Ukraine. He has already started suing a small nation for this reason, claiming sixteen billion dollars: an amount representing half government’s yearly income. Among the counsel on his side? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s delay in using frozen oligarchs' funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over sovereign states might be preventing the finance Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that such things were not possible. Previously, a senior politician, championing the most significant and hazardous of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this topic described critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “as corporations grasp the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were met with general mockery.

That warning has come to pass. In the current period, oil and gas and mining firms have initiated a historic level of claims against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – state efforts to halt global warming. Corporations have so far won vast sums by using ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP