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How do you reckon our democratic process functions? It could be along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills become law. The law is maintained by the courts. That's it. Well, that was how it operated in the past. Those days are over.

The Emergence of Shadow Arbitration Panels

Today, overseas companies, or the oligarchs behind them, have the power to sue nation states for the laws they pass, at offshore tribunals made up of corporate lawyers. The cases are conducted away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or legal review. You or I cannot take a case to them, just as our government, including businesses based in this country. They are open only to corporations operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions, potentially billions.

These awards are based not on tangible damages but money the tribunal officials decide the company might otherwise have made. The government might be compelled to abandon its policy. It will be deterred from introducing similar legislation along the same lines, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as corporations observe each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The outcome? Sovereignty and democracy are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the choices made by elected bodies is that this clause has been written – without public consent, and typically amid a climate of profound opacity – within bilateral investment treaties.

A Concrete Example: The Whitehaven Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have zero effect on national carbon targets. The new government then withdrew the licence the Tories had approved. Now, this success is under threat by an foreign court accountable to exclusively the corporations petitioning it.

In August, a corporate entity whose ultimate owners reside in the Cayman Islands filed a lawsuit versus the UK government. The previous week a tribunal in the United States was set up to hear it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been permitted to proceed. We have little idea how much this could amount to. What legal team is acting on its behalf challenging the British government? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the high court validates it, then a overseas corporation contests it through an secretive private court, and a sitting MP represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case so far, but it appears probable that he will utilise the tribunal to contest the sanctions the UK imposed on him following the war in Ukraine. He has previously started suing another European state with similar intent, claiming $16bn: equivalent to half of nation's yearly budget. Among the lawyers on his side? the wife of a former prime minister, married to the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Threats

The public was told that such things could not occur. Previously, a senior politician, promoting the most significant and hazardous of all these agreements, stated: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” An expert on this topic accused campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms begin to understand the authority they now possess, they will shift their focus from the weak nations to the wealthy nations” were greeted by general mockery.

That threat has come to pass. This year, oil and gas and mining firms have filed a unprecedented number of suits against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – state efforts to stop climate breakdown. Corporations have thus far won vast sums via ISDS, of which oil majors have secured $84bn. That equates to the combined GDP