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What is your understand our democratic process functions? Perhaps similar to this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation is maintained by the courts. Simple as that. Well, that used to be how it once functioned. No longer.

The Emergence of Shadow Tribunals

In the modern era, international firms, or the billionaires behind them, have the power to sue nation states for the policies they pass, at offshore tribunals made up of commercial attorneys. These proceedings are conducted away from public scrutiny. Unlike our courts, these bodies provide no opportunity to appeal or legal review. You or I cannot take a case to them, and neither can our government, or even businesses headquartered in this country. The door is open exclusively to entities registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

This compensation are based not on real financial harm but money the panel members decide the company would perhaps have made. The state may have to abandon its policy. It is deterred from enacting future policies in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as companies take cues from each other, and hedge funds finance suits in exchange for a share of the takings. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the choices taken by legislatures is that this provision has been inserted – absent public approval, and frequently under conditions of total confidentiality – inside bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The justice determined that schemes to dig the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no impact on our carbon budgets. The Labour government then withdrew the permission the Tories had approved. Today, this success faces being overturned by an secret arbitration panel answering to only the corporations bringing the case.

Last August, a firm whose final controllers reside in the offshore financial centre filed a lawsuit against the UK government. Recently a dispute settlement body in Washington DC was established to hear it.

This firm is litigating against the UK for the revenue it could have earned if the mine had received permission to proceed. The public has no idea how much this might be. Which individual is representing it against the British government? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the national judiciary validates it, then a international entity disputes it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

Concurrently that the panel on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case at present, but it is highly possible that he’ll use the tribunal to contest the sanctions the UK enacted against him after the invasion of Ukraine. He has already started suing Luxembourg on these grounds, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Part of the counsel on his side? the wife of a former prime minister, married to the former British prime minister.

Legal experts believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Costs

Politicians promised that these scenarios were not possible. Previously, a government leader, promoting the biggest and most dangerous of all such treaties, told us: “The UK has signed investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this matter described campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear these lawsuits. Warnings that “when companies begin to understand the authority they now possess, they will turn their attention from the poorer states to the wealthy nations” were dismissed with general mockery.

That warning has come to pass. In the current period, oil and gas and mining firms have initiated a historic level of claims against nations across the economic spectrum, challenging – similar to the Whitehaven project – official measures to prevent environmental catastrophe. Companies have thus far won $114bn by using ISDS, of which oil majors have secured the majority. That is equivalent to the combined GDP