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What is your understand our democratic process functions? It could be along the lines of this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, and the wealthy individuals behind them, can sue nation states for the policies they pass, at private courts composed of commercial attorneys. These proceedings are held away from public scrutiny. Differing from national judiciaries, these tribunals allow no opportunity to appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, including enterprises operating from this country. Access is granted solely for businesses based overseas.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions, potentially billions.

This compensation are based not on real financial harm but compensation the panel members decide the company might otherwise have made. The government could be forced to rescind the measure. It is discouraged from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Process Running Rampant

Record numbers of disputes are being brought, as companies take cues from each other, and private equity fund legal actions in return for a share of the awards. The outcome? Democratic sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings enacted by parliaments is that this provision has been inserted – without public consent, and typically amid conditions of profound opacity – into trade treaties.

A Concrete Case: The UK Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The judge found that plans to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine could have no consequence on our carbon budgets. The Labour government subsequently revoked the licence the former government had granted. Today, this success faces being overturned by an offshore tribunal reporting to only the corporations bringing the case.

Last August, a corporate entity whose beneficial owners are located in the offshore financial centre lodged a claim challenging the UK government. Recently a dispute settlement body in the US capital was set up to consider the case.

This firm is suing the UK for the money it could have earned if the mine had received permission to commence operations. The public has no idea how much this sum represents. What legal team is representing it challenging the British government? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the national judiciary validates it, then a overseas corporation contests it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Case

Concurrently that the panel on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know little of the case at present, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK levied against him following the war in Ukraine. He has filed a claim against Luxembourg for this reason, demanding sixteen billion dollars: half that nation's yearly budget. Among the legal team representing him there? Cherie Blair, married to the previous PM.

Legal experts contend that the EU’s delay in utilising seized Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Escalating Threats

Politicians promised that these scenarios could not occur. In 2014, a government leader, championing the most significant and hazardous of all such treaties, told us: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” A consultant on this issue accused campaigners of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations needed to fear such legal actions. Warnings that “as corporations start to realise the power they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning is now a reality. This year, fossil fuel and mining firms have initiated a unprecedented number of suits against nations rich and poor, challenging – similar to the Whitehaven project – state efforts to stop environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded the majority. That represents the combined GDP