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How do you understand our democratic process functions? It could be something like this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills pass into law. The law are enforced by the courts. That's it. However, that’s how it operated in the past. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals that control them, have the power to sue nation states for the policies they pass, at offshore tribunals composed of business advocates. Such disputes are conducted behind closed doors. In contrast to domestic courts, these tribunals allow no avenue for appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even enterprises based in this country. They are open exclusively to corporations based overseas.

When a secret court determines that a government measure may compromise the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

These awards constitute not actual losses but money the arbitrators decide the company could potentially have made. The state may have to rescind the measure. It will be discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of cases are being initiated, as companies take cues from each other, and investment funds finance suits for a share of a share of the settlements. The outcome? National sovereignty and democratic governance are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the choices enacted by legislatures is that this provision has been inserted – without democratic mandate, and frequently under a climate of total confidentiality – within international trade agreements.

A Real-World Case: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the High Court. The justice found that proposals to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the consent the Tories had approved. Now, this legal outcome is under threat by an offshore tribunal accountable to only the companies filing the suit.

Last August, a company whose ultimate owners are based in the Cayman Islands initiated proceedings challenging the UK government. Recently a arbitration panel in the United States was set up to consider the case.

The claimant is suing the UK for the money it could have earned if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is representing it in opposition to the state? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The state passes a law, the national judiciary validates it, then a overseas corporation contests it through an unaccountable private court, and a member of our parliament works for its behalf.

An Oligarch's Challenge

On the same day that the court on the coalmine case was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are nothing of the case to date, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has started suing a small nation with similar intent, seeking a colossal sum: half that state's annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s delay in leveraging immobilised state funds as collateral for its financial support package arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over sovereign states could be blocking the finance Ukraine urgently requires.

False Assurances and Escalating Costs

The public was told that such things wouldn’t happen. In 2014, a government leader, championing the largest and riskiest of all these agreements, stated: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” An expert on this issue labelled campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by these lawsuits. Warnings that “when companies begin to understand the authority they now possess, they will shift their focus from the poorer states to the strong ones” were dismissed with general mockery.

That threat has come to pass. Recently, fossil fuel and resource corporations have initiated a historic level of suits against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have so far won $114bn by using ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP