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Can you reckon our democratic process functions? Maybe similar to this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. However, that’s how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, international firms, or the billionaires that control them, can sue nation states for the laws they pass, at private courts composed of corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses operating from this country. They are open exclusively to corporations registered abroad.

When a secret court rules that a legislative action might diminish the corporation’s projected profits, it may order financial penalties of hundreds of millions, even billions.

These sums represent not tangible damages but money the panel members determine the company would perhaps have made. The administration may have to abandon its policy. It is discouraged from passing future laws along the same lines, worried about incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of disputes are being brought, as corporations take cues from each other, and hedge funds bankroll lawsuits for a share of a portion of the takings. The result? Democratic sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the decisions made by parliaments is that this clause has been written – without democratic mandate, and often in an atmosphere of total confidentiality – inside international trade agreements.

A Real-World Instance: The UK Coal Mine

Last year, a conservation group secured a significant win at the High Court. The justice found that proposals to dig the first deep coalmine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on national carbon targets. The new government subsequently revoked the permission the former government had granted. Now, this victory is under threat by an offshore tribunal reporting to exclusively the entities petitioning it.

During August, a company whose final controllers reside in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in the US capital was set up to adjudicate on it.

This firm is suing the UK for the money it might have made if the mine had been permitted to go ahead. The public has no idea how much this sum represents. Which individual is acting on its behalf against the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a international entity contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it is highly possible that he will utilise the arbitration process to challenge the restrictions the UK levied against him subsequent to the Russian aggression. He has already started suing Luxembourg for this reason, seeking sixteen billion dollars: equivalent to half of government’s annual revenue. Among the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists argue that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that such things wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all such treaties, stated: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” A consultant on this matter described activists of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “once firms grasp the authority they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by widespread derision.

That prediction is now a reality. In the current period, energy and mining firms have initiated a record number of cases against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – state efforts to prevent climate breakdown. Corporations have thus far won $114bn via ISDS, of which energy giants have obtained the majority. That equates to the combined GDP