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How do you reckon our democratic process works? Perhaps something like this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills become law. The law is maintained by the courts. That's it. Well, that’s how it operated in the past. Those days are over.

The Emergence of Shadow Arbitration Panels

Today, international firms, and the wealthy individuals that control them, have the power to sue governments for the policies they pass, at offshore tribunals composed of business advocates. These proceedings are held away from public scrutiny. Differing from national judiciaries, these panels allow no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even enterprises based in this country. They are open only to entities registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These sums are based not on actual losses but money the tribunal officials decide the company would perhaps have made. The state may have to rescind the measure. It is discouraged from introducing similar legislation of a similar nature, for fear of facing litigation.

A Process Growing Exponentially

Unprecedented levels of cases are being filed, as companies observe each other, and investment funds fund legal actions in return for a portion of the settlements. The result? National sovereignty and democracy are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the rulings taken by parliaments is that this stipulation has been written – without public consent, and frequently under conditions of total confidentiality – inside bilateral investment treaties.

A Specific Example: The UK Coalmine

Twelve months ago, environmental campaigners won a great victory at the High Court. The presiding officer determined that schemes to dig the first deep coalmine in the UK for 30 years, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have had no consequence on climate commitments. The new government subsequently revoked the consent the former government had approved. Currently, this success could be compromised by an foreign court answering to only the entities filing the suit.

During August, a firm whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was convened to adjudicate on it.

The claimant is litigating against the UK for the money it would have generated if the mine had been allowed to commence operations. The public has little idea how much this sum represents. What legal team is representing it in opposition to the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The administration passes a law, the domestic court validates it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case to date, but it appears probable that he’ll use the ISDS mechanism to challenge the penalties the UK levied against him after the war in Ukraine. He has previously filed a claim against a small nation on these grounds, demanding $16bn: half that state's yearly income. Among the lawyers on his side? the wife of a former prime minister, spouse of the previous PM.

Legal experts argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

Empty Promises and Mounting Risks

The public was told that such things could not occur. In 2014, a senior politician, championing the largest and riskiest of all such treaties, told us: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” An adviser on this matter accused activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries needed to fear such legal actions. Predictions that “when companies begin to understand the authority they’ve been granted, they will shift their focus from the weak nations to the strong ones” were met with general mockery.

That warning has come to pass. In the current period, fossil fuel and extraction companies have initiated a record number of claims against nations rich and poor, contesting – like the example of the Cumbrian coalmine – state efforts to stop global warming. Firms have thus far won $114bn through ISDS, of which oil majors have obtained eighty-four billion dollars. That represents the combined GDP