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What is your perceive our democratic process operates? Perhaps something like this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. The law is maintained by the courts. End of story. However, that used to be how it operated in the past. No longer.

The Emergence of Offshore Arbitration Panels

Nowadays, overseas companies, along with the billionaires who own them, can sue elected administrations for the laws they pass, at private courts composed of commercial attorneys. These proceedings are conducted behind closed doors. In contrast to domestic courts, these tribunals grant no right of appeal or legal review. You or I are unable to file a case to them, nor can our government, including businesses headquartered in this country. The door is open solely for entities registered abroad.

If a tribunal determines that a government measure might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, running into billions.

This compensation are based not on tangible damages but funds the arbitrators decide the company could potentially have made. The state might be compelled to abandon its policy. It will be discouraged from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as companies observe each other, and private equity fund legal actions for a share of a cut of the awards. The outcome? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the choices taken by parliaments is that this clause has been inserted – without public consent, and often in a climate of total confidentiality – into bilateral investment treaties.

A Real-World Example: The UK Coal Mine

A year ago, activists secured a significant win at the senior court. The justice ruled that proposals to open the first new deep coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no consequence on national carbon targets. The Labour government then withdrew the consent the former government had issued. Currently, this legal outcome faces being overturned by an offshore tribunal reporting to only the companies filing the suit.

In August, a firm whose ultimate owners are located in the Cayman Islands initiated proceedings versus the UK government. Last week a dispute settlement body in Washington DC was convened to consider the case.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to commence operations. The public has little idea how much this could amount to. Which individual is acting on its behalf in opposition to the UK administration? A sitting MP, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the domestic court supports it, then a international entity contests it through an undemocratic private court, and a sitting MP represents its behalf.

The Russian Lawsuit

On the same day that the panel on the mining lawsuit was convened, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he’ll use the arbitration process to contest the sanctions the UK imposed on him after the invasion of Ukraine. He has initiated proceedings against a small nation for this reason, claiming sixteen billion dollars: half that government’s yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

International law scholars believe that the EU’s delay in using frozen state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, unaccountable authority over sovereign states could be blocking the funds Ukraine desperately needs.

Misleading Claims and Escalating Costs

We were assured that these scenarios were not possible. Previously, a senior politician, advocating for the largest and riskiest of all such treaties, declared: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An expert on this matter labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “once firms begin to understand the influence they now possess, they will shift their focus from the vulnerable countries to the strong ones” were greeted by widespread derision.

That warning has now materialised. Recently, fossil fuel and mining firms have filed a historic level of claims against nations rich and poor, challenging – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Corporations have so far won $114bn through ISDS, of which oil majors have secured the majority. That equates to the combined GDP