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What is your understand our democratic process functions? Maybe something like this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. However, that was how it once functioned. Those days are over.

The Rise of Offshore Courts

Nowadays, foreign corporations, and the wealthy individuals behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels made up of corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these tribunals grant no right of appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even enterprises operating from this country. They are open exclusively to businesses based overseas.

Should an arbitration panel finds that a law or policy might diminish the corporation’s expected profits, it can award compensation of hundreds of millions, even billions.

These sums are based not on tangible damages but compensation the panel members conclude the company might otherwise have made. The administration might be compelled to drop the legislation. It is deterred from passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Running Rampant

Record numbers of legal actions are being initiated, as firms observe each other, and hedge funds fund legal actions for a share of a share of the awards. The consequence? Sovereignty and democracy are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the decisions made by parliaments is that this clause has been written – without public consent, and typically amid conditions of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The Cumbrian Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The presiding officer determined that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine could have no impact on national carbon targets. The new government later cancelled the permission the former government had granted. Today, this success could be compromised by an secret arbitration panel answering to no one but the companies petitioning it.

In August, a firm whose ultimate owners are based in the tax haven lodged a claim challenging the UK government. Recently a tribunal in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. The public has little idea how much this sum represents. What legal team is acting on its behalf against the UK administration? A sitting MP, and former attorney-general in the outgoing administration, that great patriot the MP. The state passes a law, the domestic court upholds it, then a foreign company challenges it through an secretive private court, and a member of our parliament acts on its behalf.

A Sanctions Case

Simultaneously that the court on the coalmine case was established, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case so far, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against Luxembourg for this reason, seeking $16bn: an amount representing half state's yearly budget. Among the counsel representing him there? the wife of a former prime minister, spouse of the previous PM.

International law scholars contend that the EU’s procrastination in leveraging immobilised state funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments might be preventing the funds Ukraine urgently requires.

Misleading Claims and Escalating Threats

We were assured that such things wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement upon trade deal and we have never seen a case in the past.” An adviser on this topic described campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “as corporations start to realise the influence bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were greeted by widespread derision.

That threat has now materialised. Recently, fossil fuel and extraction companies have initiated a historic level of claims against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to stop environmental catastrophe. Corporations have so far won $114bn through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP