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How do you reckon our democratic process operates? It could be similar to this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that’s how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, and the oligarchs that control them, can sue governments for the laws they pass, at secret arbitration panels composed of commercial attorneys. The cases take place away from public scrutiny. Unlike our courts, these panels allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even enterprises operating from this country. They are open solely for businesses operating from foreign soil.

If a tribunal rules that a legislative action may compromise the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

This compensation represent not actual losses but compensation the tribunal officials determine the company would perhaps have made. The administration might be compelled to abandon its policy. It is discouraged from enacting future policies of a similar nature, worried about facing litigation.

A Process Running Rampant

Unprecedented levels of disputes are being brought, as companies observe each other, and investment funds finance suits for a share of a portion of the awards. The result? Sovereignty and democracy are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions made by elected bodies is that this stipulation has been written – without democratic mandate, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The judge found that plans to dig the first deep coalmine in the UK for 30 years, in northwest England, were wrongly permitted by the previous government, which had agreed to the questionable argument that the mine would have no impact on climate commitments. The Labour government then withdrew the licence the former government had issued. Today, this success could be compromised by an foreign court reporting to exclusively the corporations bringing the case.

In August, a company whose beneficial owners are located in the tax haven lodged a claim against the UK government. Recently a dispute settlement body in Washington DC was set up to adjudicate on it.

The company is suing the UK for the profits it might have made if the mine had been allowed to commence operations. The public has little idea how much this could amount to. What legal team is representing it against the state? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The government passes a law, the national judiciary supports it, then a overseas corporation disputes it through an secretive offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

Simultaneously that the court on the coal mine dispute was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case so far, but it appears probable that he will utilise the arbitration process to challenge the penalties the UK enacted against him following the invasion of Ukraine. He has started suing Luxembourg for this reason, claiming a colossal sum: half that government’s yearly budget. Part of the legal team on his side? a prominent lawyer, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine arises 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 may be obstructing the funds Ukraine critically depends on.

Empty Promises and Mounting Risks

We were assured that these scenarios wouldn’t happen. Previously, a government leader, advocating for the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An expert on this matter accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about ISDS claims. Predictions that “once firms grasp the authority bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were dismissed with widespread derision.

That prediction has come to pass. In the current period, energy and extraction companies have filed a historic level of cases against nations rich and poor, contesting – as in the case of the Cumbrian coalmine – official measures to stop global warming. Companies have to date won $114bn by using ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP