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How do you reckon our political system functions? Maybe similar to this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Emergence of Secret Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals that control them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals composed of business advocates. These proceedings take place behind closed doors. Differing from national judiciaries, these tribunals allow no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, or even companies headquartered in this country. They are open only to businesses based overseas.

If a tribunal rules that a government measure might diminish the corporation’s projected profits, it may order compensation of vast sums, even billions.

This compensation constitute not tangible damages but money the tribunal officials conclude the company might otherwise have made. The government could be forced to drop the legislation. It is deterred from enacting future policies of a similar nature, worried about being sued.

A Process Growing Exponentially

Unprecedented levels of cases are being filed, as firms learn from each other, and private equity finance suits for a share of a cut of the awards. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the rulings enacted by legislatures is that this provision has been inserted – without public consent, and often in conditions of profound opacity – inside international trade agreements.

A Specific Example: The UK Coal Mine

Last year, activists achieved a major legal triumph at the senior court. The judge found that schemes to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The Labour government later cancelled the permission the previous administration had approved. Now, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the companies petitioning it.

In August, a company whose final controllers reside in the offshore financial centre lodged a claim challenging the UK government. Recently a dispute settlement body in the US capital was convened to adjudicate on it.

The claimant is litigating against the UK for the revenue it might have made if the mine had been allowed to proceed. We have no idea how much this might be. What legal team is acting on its behalf challenging the British government? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The state enacts a policy, the domestic court supports it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case at present, but it seems likely that he may employ the tribunal to challenge the penalties the UK levied against him after the invasion of Ukraine. He has previously filed a claim against another European state for this reason, seeking a colossal sum: equivalent to half of state's yearly income. Part of the counsel on his side? the wife of a former prime minister, wife of the previous PM.

Legal experts contend that the EU’s hesitation in using frozen oligarchs' funds as security for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over elected governments could be blocking the finance Ukraine desperately needs.

Empty Promises and Mounting Costs

Politicians promised that these events were not possible. In 2014, a senior politician, championing the largest and riskiest of all these agreements, told us: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An adviser on this topic accused campaigners of “scaremongering … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about these lawsuits. Warnings that “as corporations begin to understand the authority they’ve been granted, they will shift their focus from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. In the current period, oil and gas and resource corporations have lodged a unprecedented number of suits against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP