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How do you understand our democratic process functions? It could be similar to this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, and the wealthy individuals that control them, have the power to sue elected administrations for the regulations they pass, at private courts made up of commercial attorneys. Such disputes are held behind closed doors. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. You or I cannot take a case to them, just as our government, including enterprises headquartered in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel finds that a government measure may compromise the corporation’s projected profits, it may order compensation of vast sums, running into billions.

These sums are based not on actual losses but money the tribunal officials determine the company could potentially have made. The state may have to drop the legislation. It becomes hesitant to introducing similar legislation in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being filed, as companies take cues from each other, and hedge funds fund legal actions for a share of a portion of the settlements. The consequence? National sovereignty and popular rule are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the decisions enacted by legislatures is that this clause has been written – without public consent, and often in conditions of extreme secrecy – within trade treaties.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that proposals to dig the first major coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on climate commitments. The new government later cancelled the permission the former government had issued. Now, this victory is under threat by an secret arbitration panel reporting to only the companies bringing the case.

In August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. Last week a tribunal in Washington DC was convened to consider the case.

This firm is suing the UK for the revenue it would have generated if the mine had been permitted to go ahead. The public has no clear indication how much this might be. Who is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the high court supports it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

On the same day that the court on the coalmine case was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know little of the case to date, but it appears probable that he may employ the tribunal to contest the sanctions the UK imposed on him following the war in Ukraine. He has previously started suing a small nation on these grounds, seeking sixteen billion dollars: half that nation's yearly income. Among the lawyers representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine urgently requires.

False Assurances and Growing Threats

Politicians promised that such things wouldn’t happen. Years ago, a government leader, championing the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade agreement upon trade deal and there has not been a case in the past.” A consultant on this topic accused activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “as corporations begin to understand the influence they now possess, they will shift their focus from the poorer states to the developed economies” were met with general mockery.

That prediction has now materialised. Recently, energy and resource corporations have filed a historic level of suits against nations rich and poor, challenging – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP