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How do you perceive our democratic process functions? It could be something like this. We elect MPs. They legislate on bills. When a majority is obtained, the bills become law. The law is maintained by the courts. That's it. Well, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Tribunals

In the modern era, international firms, along with the billionaires behind them, can sue governments for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes are conducted behind closed doors. Differing from national judiciaries, these bodies grant no avenue for appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even businesses operating from this country. Access is granted only to businesses registered abroad.

Should an arbitration panel rules that a legislative action might diminish the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but funds the panel members determine the company would perhaps have made. The government may have to rescind the measure. It is deterred from passing future laws of a similar nature, due to the risk of facing litigation.

A System Spiralling Out of Control

Historically high figures of cases are being initiated, as firms learn from each other, and private equity finance suits for a share of a share of the takings. The consequence? Democratic sovereignty and popular rule are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the rulings taken by legislatures is that this stipulation has been incorporated – absent public approval, and typically amid conditions of extreme secrecy – into trade treaties.

A Real-World Instance: The Cumbrian Coal Mine

Twelve months ago, activists achieved a major legal triumph at the senior court. The justice found that plans to open the first new deep coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine could have no consequence on climate commitments. The incoming administration then withdrew the licence the Tories had approved. Currently, this legal outcome is under threat by an offshore tribunal accountable to no one but the companies petitioning it.

Last August, a firm whose beneficial owners are based in the tax haven initiated proceedings against the UK government. Last week a tribunal in the United States was convened to consider the case.

The company is litigating against the UK for the revenue it might have made if the mine had received permission to commence operations. Citizens have no clear indication how much this might be. What legal team is acting on its behalf challenging the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a international entity challenges it through an unaccountable arbitration panel, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the court on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it seems likely that he may employ the arbitration process to challenge the penalties the UK imposed on him subsequent to the Russian aggression. He has started suing a small nation with similar intent, claiming sixteen billion dollars: half that nation's yearly income. Included in the counsel representing him there? a prominent lawyer, wife of the former British prime minister.

International law scholars argue that the EU’s delay in using frozen Russian assets as collateral for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over democratic administrations could be blocking the funds Ukraine urgently requires.

Misleading Claims and Mounting Costs

Politicians promised that these events could not occur. Years ago, a former prime minister, advocating for the most significant and hazardous of all such treaties, stated: “Britain has agreed to trade deal upon trade deal and there has not been a problem in the past.” An adviser on this topic described activists of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about ISDS claims. Predictions that “as corporations start to realise the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were met with scepticism.

That warning has now materialised. In the current period, fossil fuel and mining firms have lodged a record number of claims against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – official measures to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP