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Can you reckon our democratic process operates? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills become law. Statutes is maintained by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Rise of Offshore Arbitration Panels

Today, overseas companies, and the wealthy individuals who own them, have the power to sue governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. The cases are held behind closed doors. Unlike our courts, these tribunals provide no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These awards represent not actual losses but funds the tribunal officials conclude the company would perhaps have made. The state could be forced to abandon its policy. It becomes hesitant to enacting future policies along the same lines, worried about facing litigation.

A Process Running Rampant

Historically high figures of legal actions are being initiated, as corporations observe each other, and investment funds finance suits in return for a portion of the takings. The outcome? National sovereignty and democracy are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the decisions enacted by legislatures is that this clause has been written – without democratic mandate, and often in an atmosphere of profound opacity – inside bilateral investment treaties.

A Specific Example: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The justice ruled that proposals to dig the first major coal mine in the UK for three decades, in Cumbria, were found to be wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine would have had no consequence on climate commitments. The Labour government then withdrew the licence the previous administration had issued. Currently, this legal outcome faces being overturned by an secret arbitration panel accountable to no one but the companies bringing the case.

In August, a corporate entity whose ultimate owners reside in the tax haven filed a lawsuit versus the UK government. Last week a tribunal in the United States was convened to adjudicate on it.

The claimant is suing the UK for the money it could have earned if the mine had been permitted to proceed. The public has little idea how much this sum represents. What legal team is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a international entity challenges it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Challenge

On the same day that the court on the mining lawsuit was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case so far, but it appears probable that he may employ the tribunal to challenge the restrictions the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against Luxembourg with similar intent, seeking a colossal sum: an amount representing half government’s annual revenue. Part of the lawyers on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s procrastination in using frozen Russian assets as guarantee for its financial support package arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that such things wouldn’t happen. Years ago, a government leader, championing the most significant and hazardous of all investment pacts, declared: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this topic labelled critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “once firms grasp the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were greeted by general mockery.

That threat has come to pass. Recently, energy and resource corporations have filed a record number of suits against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to halt global warming. Corporations have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP