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How do you reckon our democratic process works? Perhaps similar to this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills pass into law. The law are enforced by the courts. Simple as that. However, that used to be how it operated in the past. No longer.

The Advent of Offshore Tribunals

In the modern era, overseas companies, and the wealthy individuals who own them, can sue governments for the regulations they pass, at private courts made up of corporate lawyers. These proceedings are held behind closed doors. Unlike our courts, these tribunals grant no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including enterprises headquartered in this country. They are open only to entities operating from foreign soil.

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

These awards represent not tangible damages but funds the panel members conclude the company might otherwise have made. The government might be compelled to rescind the measure. It will be deterred from passing future laws in that area, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being filed, as firms learn from each other, and investment funds bankroll lawsuits for a share of a share of the awards. The outcome? Democratic sovereignty and democratic governance are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the rulings enacted by elected bodies is that this stipulation has been incorporated – absent public approval, and frequently under a climate of profound opacity – inside trade treaties.

A Concrete Example: The Whitehaven Coalmine

Twelve months ago, environmental campaigners won a great victory at the high court. The presiding officer determined that plans to open the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on national carbon targets. The incoming administration then withdrew the licence the previous administration had approved. Now, this legal outcome is under threat by an offshore tribunal reporting to exclusively the companies petitioning it.

Last August, a firm whose ultimate owners are located in the Cayman Islands lodged a claim against the UK government. Last week a dispute settlement body in Washington DC was convened to hear it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had received permission to go ahead. Citizens have little idea how much this sum represents. Who is acting on its behalf against the British government? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The administration enacts a policy, the national judiciary validates it, then a foreign company contests it through an secretive arbitration panel, and a elected official represents its behalf.

A Sanctions Lawsuit

Simultaneously that the tribunal on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case to date, but it is highly possible that he may employ the tribunal to challenge the penalties the UK levied against him after the war in Ukraine. He has previously started suing Luxembourg on these grounds, claiming $16bn: an amount representing half government’s yearly budget. Among the legal team acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars contend that the EU’s delay in leveraging immobilised state funds as security for its financial support package stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

Misleading Claims and Mounting Costs

The public was told that these scenarios could not occur. In 2014, a government leader, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” A consultant on this issue accused activists of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries had to worry about such legal actions. Predictions that “as corporations start to realise the power they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has now materialised. Recently, energy and resource corporations have initiated a unprecedented number of claims against nations across the economic spectrum, contesting – similar to the Whitehaven project – state efforts to prevent climate breakdown. Corporations have so far won $114bn by using ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP