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How do you understand our democratic process works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. Yet, that used to be how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

Today, overseas companies, or the oligarchs that control them, can sue governments for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted in secret. Unlike our courts, these panels allow no right of appeal or judicial review. You or I are barred from bringing a case to them, just as our government, or even enterprises operating from this country. Access is granted solely for businesses registered abroad.

If a tribunal rules that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These awards constitute not tangible damages but money the tribunal officials conclude the company might otherwise have made. The administration may have to rescind the measure. It becomes discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of disputes are being initiated, as companies take cues from each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the choices taken by elected bodies is that this provision has been incorporated – without public consent, and often in conditions of extreme secrecy – into trade treaties.

A Specific Instance: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the High Court. The judge ruled that plans to excavate the first major coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have zero effect on climate commitments. The incoming administration then withdrew the consent the previous administration had granted. Currently, this success is under threat by an secret arbitration panel answering to exclusively the companies bringing the case.

Last August, a corporate entity whose final controllers are located in the Cayman Islands lodged a claim versus the UK government. Recently a tribunal in Washington DC was convened to hear it.

The company is suing the UK for the money it would have generated if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. Which individual is serving as its counsel against the state? A sitting MP, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The government passes a law, the national judiciary supports it, then a international entity contests it through an unaccountable arbitration panel, and a sitting MP represents its behalf.

The Russian Case

On the same day that the court on the coalmine case was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case to date, but it is highly possible that he’ll use the tribunal to challenge the restrictions the UK enacted against him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg with similar intent, claiming $16bn: an amount representing half state's yearly budget. Part of the counsel on his side? a prominent lawyer, married to the previous PM.

International law scholars believe that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states might be preventing the finance Ukraine urgently requires.

Misleading Claims and Mounting Risks

The public was told that such things wouldn’t happen. In 2014, a former prime minister, promoting the biggest and most dangerous of all investment pacts, declared: “The UK has signed investment treaty upon trade deal and there has not been a issue in the past.” An adviser on this topic labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “as corporations grasp the authority bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were met with scepticism.

That prediction is now a reality. Recently, oil and gas and mining firms have filed a record number of cases against nations both wealthy and developing, contesting – similar to the Whitehaven project – official measures to halt environmental catastrophe. Companies have to date won $114bn via ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP