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How do you understand our democratic process functions? Maybe something like this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. That's it. However, that was how it once functioned. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, and the oligarchs who own them, can sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. The cases are held behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even businesses based in this country. They are open only to entities based overseas.

Should an arbitration panel determines that a legislative action may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions, potentially billions.

This compensation are based not on actual losses but funds the tribunal officials conclude the company might otherwise have made. The government could be forced to abandon its policy. It is deterred from enacting future policies in that area, for fear of facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being filed, as companies observe each other, and private equity bankroll lawsuits in return for a cut of the settlements. The result? National sovereignty and democracy are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices made by parliaments is that this stipulation has been inserted – absent public approval, and typically amid conditions of total confidentiality – inside trade treaties.

A Concrete Case: The UK Coal Mine

Twelve months ago, activists secured a significant win at the senior court. The presiding officer ruled that plans to dig the first new deep coal mine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The new government later cancelled the permission the former government had granted. Currently, this success is under threat by an offshore tribunal answering to no one but the corporations petitioning it.

In August, a firm whose ultimate owners reside in the tax haven lodged a claim challenging the UK government. Last week a arbitration panel in the United States was set up to hear it.

The company is litigating against the UK for the profits it could have earned if the mine had been allowed to commence operations. We have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the high court validates it, then a foreign company disputes it through an unaccountable arbitration panel, and a elected official represents its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know scarce of the case to date, but it appears probable that he may employ the tribunal to fight the restrictions the UK enacted against him after the Russian aggression. He has previously filed a claim against a small nation for this reason, seeking a colossal sum: half that nation's annual revenue. Included in the lawyers representing him there? a prominent lawyer, spouse of the ex-UK leader.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that these scenarios wouldn’t happen. In 2014, a former prime minister, advocating for the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this topic accused critics of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “once firms start to realise the authority they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with widespread derision.

That threat has come to pass. This year, fossil fuel and resource corporations have initiated a historic level of suits against nations both wealthy and developing, opposing – as in the case of the UK mine – government attempts to halt climate breakdown. Firms have thus far won $114bn via ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP