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How do you understand our democratic process works? Perhaps something like this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Statutes is upheld by the courts. That's it. Yet, that used to be how it used to work. Not anymore.

The Emergence of Shadow Courts

Today, international firms, and the billionaires behind them, are able to litigate against nation states for the regulations they pass, at offshore tribunals composed of business advocates. The cases are conducted in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even businesses based in this country. The door is open only to entities based overseas.

Should an arbitration panel determines that a government measure might diminish the corporation’s anticipated profits, it may order damages of hundreds of millions, even billions.

These sums represent not real financial harm but funds the tribunal officials determine the company might otherwise have made. The administration might be compelled to rescind the measure. It becomes deterred from introducing similar legislation along the same lines, worried about facing litigation.

A System Growing Exponentially

Record numbers of disputes are being brought, as firms observe each other, and hedge funds bankroll lawsuits for a share of a share of the takings. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the choices taken by legislatures is that this stipulation has been written – without public consent, and typically amid a climate of total confidentiality – inside international trade agreements.

A Real-World Case: The Cumbrian Coalmine

A year ago, a conservation group secured a significant win at the high court. The justice ruled that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The incoming administration then withdrew the consent the Tories had issued. Currently, this victory is under threat by an secret arbitration panel accountable to only the corporations filing the suit.

During August, a corporate entity whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. We have little idea how much this could amount to. What legal team is acting on its behalf against the UK administration? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a international entity challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Challenge

On the same day that the panel on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case to date, but it seems likely that he’ll use the tribunal to contest the penalties the UK levied against him after the Russian aggression. He has previously initiated proceedings against Luxembourg with similar intent, seeking a colossal sum: an amount representing half state's yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, married to the previous PM.

Legal experts argue that the EU’s delay in utilising seized oligarchs' funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over democratic administrations could be blocking the money Ukraine critically depends on.

Misleading Claims and Mounting Costs

The public was told that such things could not occur. In 2014, a government leader, championing the biggest and most dangerous of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has not been a issue in the past.” An adviser on this matter described campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations grasp the power they’ve been granted, they will shift their focus from the poorer states to the strong ones” were greeted by widespread derision.

That prediction has now materialised. Recently, fossil fuel and extraction companies have filed a record number of cases against nations rich and poor, challenging – like the example of the Cumbrian coalmine – government attempts to stop global warming. Corporations have thus far won $114bn through ISDS, of which oil majors have secured $84bn. That represents the combined GDP