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How do you understand our democratic process operates? Maybe something like this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills become law. The law is maintained by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Advent of Shadow Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, including businesses headquartered in this country. Access is granted exclusively to businesses operating from foreign soil.

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

These awards constitute not real financial harm but compensation the tribunal officials conclude the company might otherwise have made. The government could be forced to drop the legislation. It will be deterred from introducing similar legislation in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of legal actions are being initiated, as firms observe each other, and hedge funds fund legal actions for a share of a portion of the takings. The result? Sovereignty and democracy are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the decisions taken by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid an atmosphere of total confidentiality – within bilateral investment treaties.

A Specific Instance: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The judge found that proposals to dig the first new deep coal mine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine would have zero effect on climate commitments. The incoming administration then withdrew the permission the Tories had issued. Today, this legal outcome is under threat by an secret arbitration panel reporting to no one but the corporations filing the suit.

During August, a corporate entity whose beneficial owners reside in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was set up to adjudicate on it.

The company is suing the UK for the revenue it might have made if the mine had received permission to proceed. We have no clear indication how much this might be. Which individual is serving as its counsel against the state? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The government makes a decision, the high court supports it, then a overseas corporation contests it through an secretive offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the tribunal on the coal mine dispute was appointed, we learned from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it is highly possible that he will utilise the arbitration process to challenge the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has previously started suing another European state on these grounds, seeking $16bn: equivalent to half of government’s yearly income. Part of the lawyers representing him there? Cherie Blair, spouse of the ex-UK leader.

Legal experts argue that the EU’s hesitation in utilising seized Russian assets as security for its loan to Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over sovereign states may be obstructing the finance Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that such things were not possible. Years ago, a senior politician, promoting the most significant and hazardous of all such treaties, declared: “The UK has signed investment treaty after trade deal and there has not been a issue in the past.” An expert on this matter accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations should be concerned by ISDS claims. Cautionary notes that “when companies start to realise the power bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning is now a reality. In the current period, oil and gas and resource corporations have filed a record number of suits against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have thus far won $114bn through ISDS, of which energy giants have secured $84bn. That equates to the combined GDP