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How do you perceive our democratic process works? Perhaps something like this. We elect MPs. They legislate on bills. If a majority is secured, the bills become law. The law is upheld by the courts. End of story. Well, that’s how it operated in the past. Those days are over.

The Emergence of Secret Arbitration Panels

Today, overseas companies, or the oligarchs who own them, can sue elected administrations for the regulations they pass, at offshore tribunals composed of commercial attorneys. Such disputes take place away from public scrutiny. Differing from national judiciaries, these tribunals provide no opportunity to appeal or oversight by judges. The general public cannot take a case to them, nor can our government, or even businesses headquartered in this country. They are open only to businesses based overseas.

If a tribunal finds that a government measure might diminish the corporation’s projected profits, it can award damages of vast sums, running into billions.

These awards are based not on tangible damages but money the panel members determine the company could potentially have made. The state might be compelled to abandon its policy. It is hesitant to passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of legal actions are being initiated, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The consequence? Democratic sovereignty and popular rule are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the decisions taken by legislatures is that this clause has been inserted – without public consent, and typically amid an atmosphere of extreme secrecy – into trade treaties.

A Specific Example: The Whitehaven Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The presiding officer ruled that plans to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The Labour government then withdrew the consent the former government had approved. Currently, this victory faces being overturned by an secret arbitration panel answering to no one but the companies bringing the case.

In August, a corporate entity whose final controllers reside in the offshore financial centre initiated proceedings versus the UK government. Last week a arbitration panel in the US capital was set up to adjudicate on it.

The company is suing the UK for the money it could have earned if the mine had been allowed to commence operations. We have little idea how much this could amount to. What legal team is serving as its counsel challenging the state? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court supports it, then a foreign company disputes it through an secretive offshore tribunal, and a elected official works for its behalf.

A Sanctions Case

On the same day that the court on the coal mine dispute was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case at present, but it is highly possible that he may employ the tribunal to fight the sanctions the UK enacted against him after the war in Ukraine. He has previously filed a claim against a small nation on these grounds, claiming a colossal sum: equivalent to half of government’s yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over elected governments may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. Previously, a government leader, advocating for the largest and riskiest of all these agreements, told us: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An expert on this matter described activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Predictions that “when companies start to realise the authority they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That prediction has come to pass. Recently, oil and gas and resource corporations have lodged a historic level of claims against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP