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Can you perceive our democratic process works? It could be something like this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. The law are enforced by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Advent of Secret Arbitration Panels

In the modern era, overseas companies, along with the billionaires who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals composed of corporate lawyers. Such disputes are held away from public scrutiny. In contrast to domestic courts, these panels allow no avenue for appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. The door is open only to businesses registered abroad.

Should an arbitration panel finds that a government measure could harm the corporation’s projected profits, it can award financial penalties of vast sums, running into billions.

These sums represent not actual losses but funds the arbitrators conclude the company would perhaps have made. The state may have to abandon its policy. It becomes deterred from introducing similar legislation along the same lines, for fear of being sued.

A Process Growing Exponentially

Record numbers of cases are being filed, as companies learn from each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The result? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the rulings taken by elected bodies is that this stipulation has been written – without public consent, and frequently under conditions of extreme secrecy – into international trade agreements.

A Real-World Case: The UK Coal Mine

Last year, activists won a great victory at the senior court. The judge found that schemes to dig the first major coal mine in the UK for three decades, in Cumbria, had been unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the permission the former government had approved. Currently, this legal outcome could be compromised by an offshore tribunal reporting to exclusively the entities petitioning it.

During August, a corporate entity whose ultimate owners reside in the Cayman Islands filed a lawsuit against the UK government. Last week a arbitration panel in the US capital was set up to hear it.

This firm is suing the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have no idea how much this might be. What legal team is serving as its counsel challenging the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the national judiciary upholds it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

The Russian Case

On the same day that the panel on the mining lawsuit was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case at present, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK levied against him subsequent to the Russian aggression. He has initiated proceedings against Luxembourg on these grounds, seeking $16bn: an amount representing half nation's yearly budget. Among the counsel acting for him in that case? Cherie Blair, married to the ex-UK leader.

Legal experts believe that the EU’s delay in leveraging immobilised Russian assets as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine urgently requires.

False Assurances and Mounting Risks

We were assured that these events were not possible. Years ago, a government leader, promoting the biggest and most dangerous of all investment pacts, declared: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this issue described campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear such legal actions. Warnings that “as corporations start to realise the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with widespread derision.

That prediction has come to pass. This year, energy and mining firms have initiated a record number of suits against nations rich and poor, challenging – similar to the UK mine – government attempts to prevent global warming. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured the majority. That equates to the combined GDP