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Can you understand our democratic process functions? It could be along the lines of this. We elect MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Statutes is upheld by the courts. End of story. However, that’s how it once functioned. Not anymore.

The Advent of Offshore Arbitration Panels

Today, overseas companies, and the billionaires behind them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes take place away from public scrutiny. In contrast to domestic courts, these tribunals provide no right of appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, including enterprises based in this country. Access is granted only to businesses registered abroad.

Should an arbitration panel finds that a law or policy could harm the corporation’s projected profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums are based not on real financial harm but funds the panel members conclude the company would perhaps have made. The government could be forced to abandon its policy. It becomes hesitant to passing future laws along the same lines, for fear of facing litigation.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations take cues from each other, and investment funds finance suits for a share of a cut of the takings. The outcome? National sovereignty and democratic governance are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices taken by legislatures is that this stipulation has been inserted – without democratic mandate, and often in a climate of total confidentiality – within bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners secured a significant win at the senior court. The judge determined that schemes to dig the first deep coalmine in the UK for three decades, in Cumbria, had been unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have had zero effect on national carbon targets. The Labour government then withdrew the permission the former government had approved. Now, this victory faces being overturned by an secret arbitration panel accountable to no one but the companies petitioning it.

In August, a corporate entity whose beneficial owners are located in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to proceed. We have no clear indication how much this might be. Which individual is acting on its behalf in opposition to the British government? An elected representative, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a foreign company challenges it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Case

On the same day that the tribunal on the mining lawsuit was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know scarce of the case so far, but it appears probable that he’ll use the arbitration process to contest the sanctions the UK imposed on him after the invasion of Ukraine. He has already started suing a small nation with similar intent, seeking $16bn: an amount representing half state's yearly income. Among the counsel acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over elected governments may be obstructing the funds Ukraine urgently requires.

False Assurances and Growing Threats

We were assured that these scenarios could not occur. Previously, a former prime minister, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” An expert on this topic described critics of “alarmism … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations needed to fear these lawsuits. Warnings that “once firms start to realise the authority they now possess, they will redirect their efforts from the poorer states to the strong ones” were met with widespread derision.

That prediction has come to pass. This year, oil and gas and extraction companies have initiated a record number of suits against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – official measures to stop climate breakdown. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP