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Can you perceive our democratic process functions? Maybe something like this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. That's it. Well, that used to be how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, and the oligarchs that control them, are able to litigate against nation states for the policies they pass, at offshore tribunals staffed by business advocates. These proceedings are conducted in secret. In contrast to domestic courts, these tribunals provide no avenue for appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even companies headquartered in this country. They are open only to corporations operating from foreign soil.

Should an arbitration panel finds that a law or policy may compromise the corporation’s anticipated profits, it may order compensation of vast sums, running into billions.

This compensation represent not tangible damages but compensation the arbitrators decide the company would perhaps have made. The government may have to drop the legislation. It is discouraged from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being filed, as corporations learn from each other, and hedge funds finance suits for a share of a portion of the takings. The consequence? Sovereignty and democracy are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the choices made by parliaments is that this clause has been inserted – without democratic mandate, and often in an atmosphere of extreme secrecy – into bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer determined that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, were illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine would have had zero effect on our carbon budgets. The incoming administration then withdrew the permission the former government had approved. Currently, this legal outcome faces being overturned by an foreign court accountable to only the companies bringing the case.

Last August, a corporate entity whose final controllers are based in the tax haven lodged a claim versus the UK government. The previous week a tribunal in the United States was set up to adjudicate on it.

The claimant is suing the UK for the profits it might have made if the mine had been allowed to proceed. The public has little idea how much this sum represents. Who is serving as its counsel challenging the UK administration? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The government enacts a policy, the domestic court upholds it, then a international entity contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

On the same day that the panel on the mining lawsuit was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are 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 subsequent to the Russian aggression. He has filed a claim against another European state for this reason, seeking sixteen billion dollars: an amount representing half government’s yearly budget. Part of the lawyers representing him there? the wife of a former prime minister, married to the ex-UK leader.

International law scholars contend that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Growing Risks

Politicians promised that such things could not occur. Previously, a government leader, championing the largest and riskiest of all investment pacts, stated: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An expert on this issue labelled campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms begin to understand the power they’ve been granted, they will shift their focus from the poorer states to the developed economies” were greeted by general mockery.

That prediction has come to pass. This year, oil and gas and resource corporations have lodged a historic level of suits against nations across the economic spectrum, contesting – as in the case of the UK mine – state efforts to stop climate breakdown. Corporations have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP