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Can you perceive our democratic process operates? Maybe something like this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Statutes are enforced by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Advent of Offshore Tribunals

In the modern era, overseas companies, and the billionaires behind them, have the power to sue governments for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes take place away from public scrutiny. In contrast to domestic courts, these panels provide no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, including enterprises based in this country. Access is granted exclusively to corporations operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it may order compensation of vast sums, running into billions.

These sums represent not tangible damages but compensation the panel members conclude the company would perhaps have made. The state may have to drop the legislation. It is discouraged from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as companies learn from each other, and hedge funds fund legal actions for a share of a cut of the takings. The outcome? National sovereignty and democracy are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the choices taken by elected bodies is that this stipulation has been written – without democratic mandate, and often in an atmosphere of total confidentiality – within bilateral investment treaties.

A Specific Instance: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The justice found that schemes to open the first deep coalmine in the UK for three decades, in northwest England, had been unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine would have had no impact on climate commitments. The new government later cancelled the consent the Tories had approved. Today, this success is under threat by an offshore tribunal answering to only the corporations filing the suit.

During August, a company whose final controllers are based in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in the US capital was convened to adjudicate on it.

This firm is suing the UK for the revenue it would have generated if the mine had received permission to go ahead. The public has no idea how much this sum represents. Which individual is representing it against the state? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court validates it, then a international entity contests it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

Concurrently that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already filed a claim against another European state with similar intent, seeking a colossal sum: half that state's yearly budget. Part of the legal team representing him there? a prominent lawyer, wife of the ex-UK leader.

Trade specialists contend that the EU’s delay in utilising seized state funds as collateral for its financial support package stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the finance Ukraine urgently requires.

Misleading Claims and Escalating Costs

Politicians promised that these events were not possible. In 2014, a former prime minister, advocating for the most significant and hazardous of all these agreements, told us: “The UK has signed trade deal after trade deal and we have never seen a issue in the past.” A consultant on this matter described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Predictions that “as corporations start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were greeted by scepticism.

That warning is now a reality. In the current period, oil and gas and resource corporations have initiated a historic level of claims against nations both wealthy and developing, opposing – like the example of the UK mine – state efforts to prevent environmental catastrophe. Corporations have to date won vast sums through ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP