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Can you reckon our democratic process operates? Perhaps similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law is upheld by the courts. That's it. Well, that was how it operated in the past. Those days are over.

The Rise of Offshore Courts

Nowadays, overseas companies, along with the billionaires who own them, can sue governments for the policies they pass, at private courts staffed by business advocates. Such disputes are held away from public scrutiny. Unlike our courts, these bodies provide no right of appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. The door is open exclusively to entities based overseas.

If a tribunal finds that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of vast sums, running into billions.

These awards are based not on real financial harm but funds the arbitrators decide the company could potentially have made. The government may have to abandon its policy. It will be hesitant to enacting future policies in that area, worried about being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as corporations observe each other, and hedge funds finance suits in return for a share of the awards. The consequence? Democratic sovereignty and democracy are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the choices made by legislatures is that this stipulation has been written – without public consent, and frequently under conditions of profound opacity – inside international trade agreements.

A Concrete Instance: The Whitehaven Coalmine

A year ago, activists won a great victory at the senior court. The presiding officer found that plans to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no impact on climate commitments. The new government then withdrew the licence the Tories had granted. Today, this legal outcome faces being overturned by an offshore tribunal accountable to no one but the companies bringing the case.

During August, a firm whose ultimate owners are based in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a tribunal in the United States was set up to hear it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. Which individual is acting on its behalf against the state? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court upholds it, then a foreign company contests it through an undemocratic arbitration panel, and a elected official acts on its behalf.

A Sanctions Lawsuit

On the same day that the panel on the mining lawsuit was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case to date, but it seems likely that he may employ the ISDS mechanism to challenge the sanctions the UK imposed on him after the Russian aggression. He has already initiated proceedings against Luxembourg for this reason, demanding $16bn: equivalent to half of state's yearly income. Part of the counsel acting for him in that case? Cherie Blair, married to the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized state funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that these scenarios were not possible. Previously, a former prime minister, championing the largest and riskiest of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this issue accused critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Predictions that “when companies begin to understand the influence bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat has come to pass. In the current period, fossil fuel and mining firms have filed a record number of cases against nations both wealthy and developing, opposing – as in the case of the UK mine – official measures to stop global warming. Firms have thus far won $114bn via ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP