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Can you perceive our democratic process works? Maybe something like this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Statutes is upheld by the courts. Simple as that. Yet, that was how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

Nowadays, foreign corporations, or the oligarchs who own them, are able to litigate against governments for the laws they pass, at private courts staffed by business advocates. These proceedings are conducted in secret. In contrast to domestic courts, these bodies provide no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises headquartered in this country. Access is granted exclusively to entities based overseas.

If a tribunal finds that a legislative action may compromise the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

This compensation constitute not actual losses but compensation the panel members conclude the company could potentially have made. The administration could be forced to rescind the measure. It becomes deterred from enacting future policies along the same lines, worried about being sued.

A System Growing Exponentially

Unprecedented levels of legal actions are being filed, as companies observe each other, and hedge funds finance suits in return for a portion of the awards. The consequence? Sovereignty and democracy are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the decisions enacted by elected bodies is that this provision has been written – absent public approval, and frequently under an atmosphere of extreme secrecy – into trade treaties.

A Real-World Instance: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the senior court. The presiding officer ruled that proposals to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have no consequence on our carbon budgets. The incoming administration subsequently revoked the licence the former government had granted. Currently, this victory is under threat by an secret arbitration panel accountable to exclusively the entities bringing the case.

In August, a company whose final controllers are located in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in the United States was convened to consider the case.

This firm is seeking compensation from the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this might be. What legal team is acting on its behalf challenging the state? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case to date, but it seems likely that he’ll use the tribunal to fight the penalties the UK levied against him following the war in Ukraine. He has already initiated proceedings against a small nation with similar intent, demanding $16bn: an amount representing half nation's annual revenue. Part of the lawyers representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists argue that the EU’s delay in using frozen state funds as collateral for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations might be preventing the finance Ukraine critically depends on.

Misleading Claims and Growing Risks

Politicians promised that these events were not possible. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” A consultant on this issue described activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear ISDS claims. Predictions that “once firms grasp the power they’ve been granted, they will shift their focus from the weak nations to the developed economies” were met with scepticism.

That warning has now materialised. In the current period, energy and extraction companies have filed a historic level of claims against nations rich and poor, contesting – like the example of the Cumbrian coalmine – official measures to stop global warming. Firms have so far won $114bn by using ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP