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What is your understand our democratic process operates? It could be along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, or the oligarchs who own them, can sue elected administrations for the regulations they pass, at private courts made up of business advocates. These proceedings take place behind closed doors. Unlike our courts, these panels allow no avenue for appeal or judicial review. You or I are unable to file a case to them, just as our government, including companies based in this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it can award compensation of hundreds of millions, even billions.

These awards are based not on actual losses but funds the tribunal officials determine the company might otherwise have made. The government could be forced to abandon its policy. It will be deterred from passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being filed, as companies learn from each other, and investment funds fund legal actions in return for a cut of the takings. The consequence? National sovereignty and popular rule are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the choices enacted by legislatures is that this provision has been incorporated – without democratic mandate, and frequently under a climate of total confidentiality – within bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

Last year, activists won a great victory at the senior court. The justice found that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine would have no consequence on climate commitments. The Labour government subsequently revoked the permission the Tories had issued. Now, this success could be compromised by an foreign court accountable to only the companies filing the suit.

During August, a company whose ultimate owners are located in the tax haven filed a lawsuit challenging the UK government. Recently a tribunal in the United States was set up to consider the case.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to commence operations. The public has no idea how much this could amount to. What legal team is serving as its counsel challenging the state? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the high court upholds it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a elected official represents its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case so far, but it is highly possible that he may employ the tribunal to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of nation's yearly budget. Among the counsel representing him there? Cherie Blair, wife of the former British prime minister.

International law scholars believe that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Escalating Threats

The public was told that these events were not possible. Years ago, a former prime minister, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” An expert on this matter labelled critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Cautionary notes that “when companies begin to understand the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.

That prediction is now a reality. In the current period, energy and extraction companies have filed a unprecedented number of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – state efforts to prevent global warming. Companies have to date won vast sums via ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP