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How do you understand our democratic process operates? Perhaps similar to this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Well, that used to be how it used to work. No longer.

The Rise of Offshore Tribunals

Today, foreign corporations, or the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at private courts composed of corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these panels provide no right of appeal or judicial review. The general public cannot take a case to them, and neither can our government, or even companies operating from this country. The door is open only to entities registered abroad.

Should an arbitration panel rules that a government measure might diminish the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

These awards represent not real financial harm but compensation the arbitrators conclude the company could potentially have made. The state might be compelled to rescind the measure. It is deterred from passing future laws in that area, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as companies observe each other, and private equity bankroll lawsuits in return for a cut of the settlements. The result? Sovereignty and democracy are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the decisions taken by elected bodies is that this stipulation has been written – absent public approval, and often in conditions of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The presiding officer ruled that plans to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The new government later cancelled the permission the former government had issued. Currently, this success is under threat by an foreign court reporting to only the entities petitioning it.

In August, a company whose beneficial owners reside in the Cayman Islands filed a lawsuit challenging the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

The claimant is litigating against the UK for the money it might have made if the mine had been allowed to go ahead. Citizens have little idea how much this sum represents. What legal team is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The government enacts a policy, the domestic court supports it, then a international entity contests it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. The public knows nothing of the case to date, but it seems likely that he may employ the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the Russian aggression. He has previously filed a claim against another European state with similar intent, claiming sixteen billion dollars: an amount representing half state's yearly income. Part of the lawyers on his side? Cherie Blair, married to the previous PM.

International law scholars believe that the EU’s procrastination in utilising seized state funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over democratic administrations may be obstructing the money Ukraine critically depends on.

Empty Promises and Growing Risks

Politicians promised that these events could not occur. In 2014, a senior politician, promoting the largest and riskiest of all these agreements, told us: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this issue accused campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear ISDS claims. Warnings that “when companies grasp the power they now possess, they will shift their focus from the weak nations to the developed economies” were greeted by scepticism.

That warning is now a reality. Recently, fossil fuel and mining firms have filed a unprecedented number of cases against nations rich and poor, contesting – as in the case of the Cumbrian coalmine – state efforts to prevent global warming. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP