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How do you reckon our democratic process works? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. Simple as that. Well, that was how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at offshore tribunals made up of commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these tribunals provide no avenue for appeal or legal review. The general public are barred from bringing a case to them, and neither can our government, including enterprises headquartered in this country. The door is open exclusively to entities registered abroad.

When a secret court finds that a government measure could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These awards are based not on tangible damages but compensation the tribunal officials conclude the company could potentially have made. The administration might be compelled to abandon its policy. It will be deterred from introducing similar legislation in that area, for fear of being sued.

A Mechanism Running Rampant

Historically high figures of cases are being brought, as corporations take cues from each other, and investment funds fund legal actions in exchange for a share of the awards. The outcome? Democratic sovereignty and democracy are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions enacted by legislatures is that this stipulation has been inserted – without democratic mandate, and often in a climate of profound opacity – inside international trade agreements.

A Concrete Instance: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The judge determined that plans to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The Labour government later cancelled the permission the Tories had issued. Today, this success faces being overturned by an offshore tribunal reporting to exclusively the entities petitioning it.

During August, a firm whose final controllers are based in the Cayman Islands lodged a claim versus the UK government. The previous week a dispute settlement body in the United States was established to hear it.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no clear indication how much this sum represents. Who is representing it against the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the high court supports it, then a foreign company contests it through an secretive arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Concurrently that the tribunal on the coal mine dispute was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case at present, but it is highly possible that he may employ the tribunal to contest the penalties the UK enacted against him after the Russian aggression. He has previously started suing Luxembourg with similar intent, demanding sixteen billion dollars: equivalent to half of state's annual revenue. Included in the counsel on his side? a prominent lawyer, spouse of the previous PM.

Legal experts believe that the EU’s delay in using frozen oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments might be preventing the money Ukraine desperately needs.

Misleading Claims and Growing Costs

The public was told that these events wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade agreement upon trade deal and there has not been a issue in the past.” A consultant on this issue described campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies start to realise the authority they’ve been granted, they will turn their attention from the weak nations to the developed economies” were dismissed with widespread derision.

That prediction has now materialised. Recently, energy and extraction companies have initiated a historic level of suits against nations across the economic spectrum, contesting – as in the case of the UK mine – government attempts to stop global warming. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP