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What is your understand our democratic process functions? Perhaps along the lines of this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that used to be how it operated in the past. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, or the billionaires that control them, can sue nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even companies operating from this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel finds that a government measure may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These sums are based not on actual losses but compensation the panel members determine the company would perhaps have made. The state might be compelled to drop the legislation. It is deterred from introducing similar legislation along the same lines, worried about being sued.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being brought, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices made by legislatures is that this provision has been written – without public consent, and often in a climate of profound opacity – into bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The judge found that plans to open the first major coal mine in the UK for a generation, in northwest England, had been illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine could have zero effect on national carbon targets. The new government later cancelled the licence the Tories had issued. Currently, this legal outcome could be compromised by an offshore tribunal accountable to exclusively the companies petitioning it.

Last August, a company whose beneficial owners are based in the offshore financial centre initiated proceedings against the UK government. Last week a arbitration panel in the United States was set up to hear it.

The company is litigating against the UK for the revenue it might have made if the mine had been allowed to proceed. The public has no idea how much this sum represents. What legal team is representing it in opposition to the British government? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot the MP. The state makes a decision, the domestic court upholds it, then a overseas corporation disputes it through an secretive arbitration panel, and a sitting MP represents its behalf.

A Sanctions Lawsuit

Simultaneously that the tribunal on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case at present, but it is highly possible that he will utilise the ISDS mechanism to contest the sanctions the UK enacted against him after the invasion of Ukraine. He has already started suing a small nation on these grounds, demanding $16bn: equivalent to half of state's yearly budget. Among the legal team on his side? Cherie Blair, spouse of the previous PM.

Trade specialists contend that the EU’s delay in leveraging immobilised oligarchs' funds as security for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over sovereign states might be preventing the money Ukraine desperately needs.

Misleading Claims and Growing Threats

We were assured that these scenarios were not possible. In 2014, a former prime minister, championing the largest and riskiest of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” An expert on this issue described critics of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about these lawsuits. Predictions that “as corporations grasp the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with widespread derision.

That warning has now materialised. In the current period, oil and gas and mining firms have filed a unprecedented number of claims against nations rich and poor, opposing – like the example of the Cumbrian coalmine – official measures to stop global warming. Firms have thus far won $114bn by using ISDS, of which energy giants have obtained $84bn. That represents the combined GDP