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How do you perceive our democratic process functions? Maybe something like this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. The law is maintained by the courts. Simple as that. However, that used to be how it operated in the past. Not anymore.

The Emergence of Offshore Courts

Nowadays, foreign corporations, or the oligarchs behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels composed of business advocates. The cases are held behind closed doors. Unlike our courts, these tribunals grant no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, including businesses operating from this country. Access is granted exclusively to entities operating from foreign soil.

When a secret court determines that a government measure may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

This compensation represent not actual losses but compensation the tribunal officials decide the company would perhaps have made. The state could be forced to rescind the measure. It will be hesitant to introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as firms take cues from each other, and investment funds bankroll lawsuits in return for a share of the settlements. The consequence? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the decisions taken by parliaments is that this clause has been inserted – absent public approval, and often in conditions of profound opacity – within trade treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The justice found that plans to excavate the first major coal mine in the UK for 30 years, in northwest England, had been illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine would have had no consequence on national carbon targets. The new government then withdrew the permission the former government had approved. Now, this victory faces being overturned by an foreign court accountable to only the entities filing the suit.

In August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit against the UK government. The previous week a dispute settlement body in the United States was set up to consider the case.

The claimant is litigating against the UK for the money it would have generated if the mine had been permitted to go ahead. The public has no idea how much this could amount to. What legal team is serving as its counsel in opposition to the state? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The state makes a decision, the high court supports it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he will utilise the arbitration process to fight the restrictions the UK levied against him following the war in Ukraine. He has started suing Luxembourg on these grounds, seeking $16bn: an amount representing half state's yearly income. Included in the legal team acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s hesitation in utilising seized Russian assets as collateral for its financial support package is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states might be preventing the money Ukraine desperately needs.

Misleading Claims and Growing Risks

We were assured that these events were not possible. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An expert on this topic described campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries needed to fear these lawsuits. Cautionary notes that “when companies grasp the power they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has now materialised. In the current period, energy and extraction companies have initiated a unprecedented number of cases against nations rich and poor, contesting – like the example of the Cumbrian coalmine – state efforts to stop global warming. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP