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How do you perceive our democratic process operates? Maybe similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Statutes is maintained by the courts. Simple as that. However, that was how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, overseas companies, along with the billionaires who own them, have the power to sue nation states for the laws they pass, at offshore tribunals staffed by corporate lawyers. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals grant no opportunity to appeal or legal review. You or I are unable to file a case to them, just as our government, or even enterprises based in this country. Access is granted exclusively to corporations operating from foreign soil.

If a tribunal determines that a legislative action could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, running into billions.

This compensation are based not on tangible damages but compensation the tribunal officials decide the company would perhaps have made. The administration could be forced to abandon its policy. It is discouraged from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being initiated, as companies take cues from each other, and hedge funds bankroll lawsuits in exchange for a share of the awards. The outcome? National sovereignty and democracy are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings taken by elected bodies is that this provision has been written – without democratic mandate, and typically amid a climate of total confidentiality – into bilateral investment treaties.

A Specific Case: The Cumbrian Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The justice found that proposals to open the first new deep coal mine in the UK for 30 years, in Cumbria, were illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on our carbon budgets. The new government subsequently revoked the consent the former government had granted. Now, this victory faces being overturned by an offshore tribunal answering to only the companies filing the suit.

During August, a company whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. The previous week a dispute settlement body in Washington DC was established to hear it.

The company is litigating against the UK for the revenue it would have generated if the mine had been allowed to proceed. We have little idea how much this could amount to. What legal team is acting on its behalf challenging the state? A sitting MP, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The government makes a decision, the high court upholds it, then a overseas corporation disputes it through an undemocratic private court, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

On the same day that the court on the coal mine dispute was established, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case so far, but it seems likely that he’ll use the tribunal to fight the penalties the UK enacted against him after the Russian aggression. He has filed a claim against Luxembourg on these grounds, seeking a colossal sum: equivalent to half of government’s yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists argue that the EU’s delay in using frozen state funds as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

Misleading Claims and Mounting Threats

The public was told that these events could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all these agreements, told us: “We’ve signed trade agreement after trade deal and there has not been a problem in the past.” An adviser on this matter described critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “as corporations grasp the influence they now possess, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That prediction is now a reality. This year, oil and gas and mining firms have filed a unprecedented number of claims against nations rich and poor, challenging – like the example of the Whitehaven project – official measures to halt climate breakdown. Companies have thus far won vast sums by using ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP