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Can you reckon our democratic process works? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. However, that was how it used to work. Not anymore.

The Advent of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals staffed by corporate lawyers. The cases take place away from public scrutiny. In contrast to domestic courts, these bodies allow no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even enterprises based in this country. They are open only to businesses registered abroad.

When a secret court determines that a legislative action may compromise the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

These awards constitute not actual losses but funds the tribunal officials conclude the company might otherwise have made. The administration may have to abandon its policy. It is discouraged from introducing similar legislation in that area, worried about being sued.

A Process Running Rampant

Record numbers of cases are being filed, as companies learn from each other, and hedge funds fund legal actions for a share of a cut of the awards. The result? Sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the decisions taken by legislatures is that this provision has been written – without public consent, and often in conditions of total confidentiality – within international trade agreements.

A Real-World Instance: The Whitehaven Coalmine

A year ago, a conservation group won a great victory at the high court. The presiding officer ruled that plans to dig the first major coal mine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had no consequence on national carbon targets. The Labour government later cancelled the consent the former government had issued. Today, this legal outcome is under threat by an secret arbitration panel accountable to exclusively the entities petitioning it.

During August, a company whose beneficial owners reside in the Cayman Islands lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was convened to adjudicate on it.

This firm is litigating against the UK for the revenue it might have made if the mine had been permitted to commence operations. Citizens have little idea how much this sum represents. What legal team is serving as its counsel challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a overseas corporation contests it through an secretive arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case to date, but it seems likely that he will utilise the tribunal to contest the restrictions the UK enacted against him subsequent to the war in Ukraine. He has previously initiated proceedings against a small nation for this reason, seeking a colossal sum: equivalent to half of state's yearly income. Part of the legal team on his side? a prominent lawyer, wife of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a government leader, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed trade agreement after trade deal and there has never been a issue in the past.” An expert on this matter described campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “when companies start to realise the power they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were met with widespread derision.

That threat is now a reality. This year, energy and mining firms have filed a unprecedented number of claims against nations across the economic spectrum, contesting – similar to the UK mine – state efforts to halt global warming. Corporations have to date won $114bn by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP