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How do you perceive our democratic process functions? Maybe along the lines of this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills pass into law. Statutes are enforced by the courts. Simple as that. Yet, that was how it operated in the past. No longer.

The Emergence of Offshore Courts

In the modern era, overseas companies, or the billionaires that control them, are able to litigate against governments for the policies they pass, at secret arbitration panels composed of business advocates. Such disputes take place behind closed doors. Unlike our courts, these panels grant no avenue for appeal or judicial review. The general public are unable to file a case to them, nor can our government, or even enterprises operating from this country. They are open solely for entities based overseas.

If a tribunal finds that a government measure might diminish the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

These sums represent not actual losses but compensation the arbitrators conclude the company would perhaps have made. The government could be forced to abandon its policy. It is discouraged from passing future laws along the same lines, for fear of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of legal actions are being brought, as companies take cues from each other, and private equity finance suits in exchange for a share of the settlements. The outcome? National sovereignty and popular rule are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the choices taken by elected bodies is that this provision has been written – without democratic mandate, and frequently under an atmosphere of total confidentiality – inside trade treaties.

A Concrete Case: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The presiding officer ruled that schemes to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The incoming administration then withdrew the consent the former government had issued. Now, this legal outcome is under threat by an offshore tribunal answering to no one but the entities filing the suit.

In August, a firm whose beneficial owners reside in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in the United States was set up to adjudicate on it.

The claimant is suing the UK for the money it might have made if the mine had received permission to proceed. The public has no idea how much this could amount to. What legal team is representing it against the state? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary supports it, then a international entity challenges it through an unaccountable private court, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the coalmine case was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he will utilise the ISDS mechanism to challenge the sanctions the UK levied against him following the Russian aggression. He has initiated proceedings against another European state with similar intent, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Among the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts believe that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine urgently requires.

False Assurances and Growing Costs

We were assured that these events were not possible. Previously, a senior politician, advocating for the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this topic labelled activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms begin to understand the power they now possess, they will turn their attention from the weak nations to the wealthy nations” were greeted by general mockery.

That warning has now materialised. This year, oil and gas and resource corporations have filed a unprecedented number of claims against nations both wealthy and developing, challenging – as in the case of the UK mine – government attempts to prevent climate breakdown. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP