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What is your perceive our democratic process works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that’s how it operated in the past. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, along with the wealthy individuals that control them, have the power to sue elected administrations for the laws they pass, at offshore tribunals staffed by corporate lawyers. The cases are held away from public scrutiny. Differing from national judiciaries, these tribunals grant no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises based in this country. Access is granted exclusively to entities operating from foreign soil.

When a secret court rules that a law or policy could harm the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These sums are based not on tangible damages but money the tribunal officials determine the company would perhaps have made. The state may have to abandon its policy. It will be hesitant to introducing similar legislation along the same lines, worried about being sued.

A System Running Rampant

Unprecedented levels of cases are being initiated, as companies take cues from each other, and private equity finance suits in return for a cut of the settlements. The consequence? Democratic sovereignty and democratic governance are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the rulings made by parliaments is that this stipulation has been written – without democratic mandate, and frequently under a climate of profound opacity – within international trade agreements.

A Concrete Example: The Whitehaven Coalmine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The justice found that proposals to open the first major coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine could have no impact on our carbon budgets. The Labour government subsequently revoked the consent the previous administration had approved. Now, this victory could be compromised by an offshore tribunal accountable to exclusively the entities petitioning it.

Last August, a corporate entity whose final controllers are based in the offshore financial centre lodged a claim against the UK government. Last week a tribunal in Washington DC was established to consider the case.

The company is litigating against the UK for the revenue it might have made if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. What legal team is representing it challenging the British government? An elected representative, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The administration passes a law, the domestic court supports it, then a foreign company challenges it through an unaccountable arbitration panel, and a elected official represents its behalf.

An Oligarch's Case

Concurrently that the court on the coalmine case was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case to date, but it is highly possible that he’ll use the arbitration process to challenge the restrictions the UK levied against him after the Russian aggression. He has already started suing a small nation on these grounds, claiming a colossal sum: an amount representing half state's yearly income. Included in the counsel on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the funds Ukraine urgently requires.

Empty Promises and Growing Costs

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” An expert on this topic described activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations needed to fear these lawsuits. Warnings that “as corporations grasp the power they now possess, they will redirect their efforts from the weak nations to the strong ones” were met with widespread derision.

That prediction is now a reality. In the current period, oil and gas and mining firms have initiated a historic level of claims against nations both wealthy and developing, opposing – as in the case of the UK mine – official measures to stop climate breakdown. Companies have so far won $114bn through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP