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What is your perceive our democratic process works? Perhaps something like this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Advent of Offshore Arbitration Panels

Today, foreign corporations, and the billionaires who own them, are able to litigate against nation states for the regulations they pass, at private courts made up of commercial attorneys. These proceedings take place in secret. Differing from national judiciaries, these bodies grant no avenue for appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, or even businesses operating from this country. The door is open only to businesses based overseas.

Should an arbitration panel rules that a government measure may compromise the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These sums constitute not tangible damages but compensation the panel members decide the company would perhaps have made. The government may have to drop the legislation. It becomes hesitant to passing future laws in that area, due to the risk of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and hedge funds finance suits in return for a portion of the settlements. The result? Democratic sovereignty and democratic governance are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the choices made by parliaments is that this clause has been written – absent public approval, and typically amid a climate of profound opacity – inside bilateral investment treaties.

A Concrete Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the High Court. The justice determined that plans to dig the first deep coalmine in the UK for three decades, in northwest England, were unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine could have zero effect on national carbon targets. The Labour government subsequently revoked the permission the former government had issued. Now, this legal outcome is under threat by an foreign court accountable to no one but the entities bringing the case.

Last August, a firm whose ultimate owners are located in the offshore financial centre filed a lawsuit against the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to proceed. We have little idea how much this sum represents. Who is representing it against the state? An elected representative, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a foreign company contests it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the coal mine dispute was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows little of the case to date, but it appears probable that he’ll use the ISDS mechanism to contest the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation for this reason, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Included in the counsel representing him there? the wife of a former prime minister, married to the former British prime minister.

Trade specialists believe that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments may be obstructing the money Ukraine critically depends on.

Empty Promises and Escalating Costs

Politicians promised that such things wouldn’t happen. In 2014, a senior politician, advocating for the most significant and hazardous of all these agreements, declared: “Britain has agreed to trade deal after trade deal and we have never seen a problem in the past.” An adviser on this topic described critics of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the authority they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were dismissed with general mockery.

That prediction is now a reality. This year, energy and resource corporations have lodged a unprecedented number of suits against nations across the economic spectrum, opposing – like the example of the UK mine – government attempts to prevent climate breakdown. Corporations have so far won vast sums via ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP