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Can you understand our democratic process works? Maybe along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. However, that used to be how it operated in the past. Not anymore.

The Advent of Secret Arbitration Panels

Nowadays, overseas companies, and the oligarchs who own them, are able to litigate against governments for the laws they pass, at offshore tribunals composed of commercial attorneys. The cases take place away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or legal review. The general public are barred from bringing a case to them, and neither can our government, or even businesses operating from this country. Access is granted only to corporations registered abroad.

When a secret court rules that a law or policy may compromise the corporation’s expected profits, it has the power to grant financial penalties of vast sums, even billions.

These awards represent not real financial harm but money the panel members decide the company could potentially have made. The administration may have to drop the legislation. It is deterred from enacting future policies of a similar nature, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of cases are being filed, as companies learn from each other, and hedge funds fund legal actions in exchange for a cut of the awards. The consequence? Sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the rulings taken by legislatures is that this clause has been inserted – absent public approval, and often in a climate of total confidentiality – into bilateral investment treaties.

A Concrete Example: The UK Coal Mine

Last year, environmental campaigners secured a significant win at the high court. The justice ruled that proposals to excavate the first deep coalmine in the UK for a generation, in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine could have no impact on climate commitments. The Labour government then withdrew the licence the former government had granted. Today, this success is under threat by an offshore tribunal answering to no one but the companies petitioning it.

During August, a firm whose beneficial owners are located in the tax haven filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was convened to adjudicate on it.

This firm is litigating against the UK for the profits it could have earned if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. Which individual is representing it challenging the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The administration makes a decision, the high court supports it, then a foreign company challenges it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Case

Simultaneously that the panel on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. Details are little of the case so far, but it seems likely that he will utilise the ISDS mechanism to challenge the penalties the UK imposed on him following the Russian aggression. He has already started suing another European state with similar intent, demanding a colossal sum: half that state's yearly budget. Included in the legal team on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts argue that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine critically depends on.

Misleading Claims and Escalating Threats

Politicians promised that these events could not occur. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, told us: “Britain has agreed to trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this matter labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear such legal actions. Predictions that “as corporations grasp the influence they now possess, they will shift their focus from the weak nations to the strong ones” were greeted by widespread derision.

That prediction is now a reality. Recently, oil and gas and resource corporations have lodged a historic level of suits against nations rich and poor, challenging – like the example of the Whitehaven project – official measures to halt environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP