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How do you reckon our democratic process operates? It could be something like this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. That's it. However, that used to be how it once functioned. Not anymore.

The Rise of Offshore Courts

In the modern era, international firms, or the oligarchs behind them, can sue nation states for the laws they pass, at secret arbitration panels composed of business advocates. Such disputes take place behind closed doors. Differing from national judiciaries, these tribunals grant no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. Access is granted solely for entities based overseas.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums constitute not actual losses but money the arbitrators determine the company would perhaps have made. The administration may have to drop the legislation. It is discouraged from passing future laws along the same lines, due to the risk of being sued.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and hedge funds finance suits in exchange for a portion of the awards. The consequence? Democratic sovereignty and popular rule are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the rulings enacted by legislatures is that this stipulation has been written – absent public approval, and typically amid an atmosphere of profound opacity – into international trade agreements.

A Specific Example: The UK Coal Mine

Last year, activists achieved a major legal triumph at the senior court. The judge ruled that plans to open the first deep coalmine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had no consequence on climate commitments. The incoming administration subsequently revoked the consent the previous administration had issued. Now, this success is under threat by an secret arbitration panel accountable to exclusively the entities filing the suit.

During August, a corporate entity whose final controllers are located in the tax haven lodged a claim challenging the UK government. Recently a tribunal in the United States was set up to adjudicate on it.

This firm is suing the UK for the money it might have made if the mine had received permission to proceed. The public has little idea how much this might be. Which individual is representing it challenging the state? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration passes a law, the domestic court validates it, then a international entity challenges it through an undemocratic private court, and a elected official acts on its behalf.

A Sanctions Case

Simultaneously that the panel on the coal mine dispute was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case at present, but it is highly possible that he may employ the ISDS mechanism to challenge the sanctions the UK imposed on him subsequent to the Russian aggression. He has already initiated proceedings against another European state with similar intent, claiming a colossal sum: half that state's yearly income. Among the lawyers on his side? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists contend that the EU’s delay in leveraging immobilised Russian assets as security for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, unaccountable authority over elected governments might be preventing the money Ukraine critically depends on.

False Assurances and Escalating Risks

The public was told that these scenarios could not occur. Years ago, a government leader, championing the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this issue described activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies start to realise the authority they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That prediction is now a reality. This year, energy and resource corporations have initiated a record number of claims against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to halt climate breakdown. Corporations have to date won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP