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How do you reckon our democratic process functions? Perhaps something like this. We elect MPs. They vote on bills. Should a majority is secured, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that was how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

Today, overseas companies, along with the wealthy individuals that control them, are able to litigate against nation states for the regulations they pass, at private courts made up of corporate lawyers. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals grant no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises based in this country. The door is open exclusively to businesses operating from foreign soil.

When a secret court finds that a law or policy could harm the corporation’s expected profits, it can award compensation of vast sums, running into billions.

This compensation constitute not actual losses but money the tribunal officials decide the company might otherwise have made. The state may have to rescind the measure. It becomes discouraged from enacting future policies in that area, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of cases are being brought, as companies observe each other, and private equity bankroll lawsuits in return for a share of the awards. The result? Democratic sovereignty and democracy are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the decisions made by parliaments is that this clause has been inserted – without democratic mandate, and typically amid conditions of extreme secrecy – within bilateral investment treaties.

A Specific Case: The UK Coal Mine

Last year, environmental campaigners secured a significant win at the high court. The judge ruled that schemes to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have had no consequence on national carbon targets. The new government then withdrew the permission the previous administration had approved. Currently, this victory faces being overturned by an secret arbitration panel accountable to exclusively the companies petitioning it.

During August, a firm whose beneficial owners reside in the tax haven initiated proceedings versus the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The company is seeking compensation from the UK for the money it could have earned if the mine had been permitted to commence operations. Citizens have no idea how much this could amount to. Who is serving as its counsel in opposition to the state? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the high court validates it, then a foreign company challenges it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

The Russian Case

On the same day that the tribunal on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. The public knows little of the case at present, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK levied against him after the Russian aggression. He has previously initiated proceedings against Luxembourg with similar intent, seeking $16bn: equivalent to half of government’s yearly budget. Part of the legal team on his side? the wife of a former prime minister, married to the ex-UK leader.

International law scholars believe that the EU’s delay in using frozen state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations may be obstructing the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that these events wouldn’t happen. In 2014, a senior politician, championing the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to trade deal after trade deal and there has never been a issue in the past.” A consultant on this matter described campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries should be concerned by ISDS claims. Predictions that “once firms grasp the authority they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were greeted by widespread derision.

That threat is now a reality. This year, fossil fuel and mining firms have lodged a historic level of suits against nations rich and poor, contesting – similar to the Whitehaven project – government attempts to stop global warming. Companies have thus far won $114bn by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP