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Can you reckon our democratic process works? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills become law. The law are enforced by the courts. Simple as that. However, that used to be how it once functioned. No longer.

The Rise of Offshore Tribunals

In the modern era, overseas companies, along with the wealthy individuals behind them, can sue nation states for the laws they pass, at secret arbitration panels staffed by corporate lawyers. The cases take place in secret. In contrast to domestic courts, these tribunals grant no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even companies headquartered in this country. Access is granted only to corporations registered abroad.

Should an arbitration panel finds that a government measure could harm the corporation’s expected profits, it may order 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 could potentially have made. The government could be forced to drop the legislation. It becomes discouraged from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of legal actions are being initiated, as firms learn from each other, and hedge funds fund legal actions in exchange for a share of the awards. The consequence? Democratic sovereignty and democratic governance are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the choices made by elected bodies is that this stipulation has been incorporated – absent public approval, and often in an atmosphere of total confidentiality – within bilateral investment treaties.

A Specific Case: The Cumbrian Coalmine

A year ago, activists secured a significant win at the senior court. The justice ruled that proposals to open the first major coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on climate commitments. The incoming administration later cancelled the consent the previous administration had approved. Currently, this victory faces being overturned by an foreign court answering to no one but the companies bringing the case.

Last August, a corporate entity whose beneficial owners reside in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in Washington DC was established to consider the case.

The company is suing the UK for the revenue it might have made if the mine had received permission to proceed. Citizens have no idea how much this could amount to. Which individual is representing it challenging the British government? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The administration makes a decision, the national judiciary supports it, then a foreign company challenges it through an secretive private court, and a sitting MP works for its behalf.

The Russian Case

Simultaneously that the panel on the coalmine case was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he will utilise the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the Russian aggression. He has previously filed a claim against another European state on these grounds, demanding $16bn: an amount representing half state's annual revenue. Among the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists argue that the EU’s delay in utilising seized oligarchs' funds as security for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states might be preventing the finance Ukraine urgently requires.

False Assurances and Escalating Risks

Politicians promised that these events wouldn’t happen. In 2014, a government leader, championing the biggest and most dangerous of all such treaties, told us: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An adviser on this issue labelled critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear such legal actions. Predictions that “when companies start to realise the authority they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were met with widespread derision.

That warning is now a reality. Recently, fossil fuel and mining firms have lodged a historic level of claims against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – official measures to prevent environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP