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How do you perceive our democratic process operates? It could be along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills pass into law. Statutes is upheld by the courts. End of story. However, that was how it operated in the past. Those days are over.

The Advent of Offshore Tribunals

Today, foreign corporations, or the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels staffed by business advocates. The cases are conducted behind closed doors. Unlike our courts, these panels provide no right of appeal or judicial review. The general public are unable to file a case to them, and neither can our government, or even enterprises operating from this country. Access is granted exclusively to entities based overseas.

When a secret court determines that a law or policy may compromise the corporation’s projected profits, it can award compensation of hundreds of millions, potentially billions.

These sums represent not actual losses but funds the tribunal officials determine the company would perhaps have made. The government might be compelled to abandon its policy. It will be hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of disputes are being filed, as firms learn from each other, and hedge funds fund legal actions in exchange for a share of the settlements. The outcome? Democratic sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the choices taken by elected bodies is that this provision has been written – absent public approval, and frequently under a climate of extreme secrecy – inside bilateral investment treaties.

A Real-World Instance: The Cumbrian Coalmine

Last year, activists won a great victory at the High Court. The judge ruled that plans to dig the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine would have had no consequence on national carbon targets. The new government subsequently revoked the permission the former government had granted. Now, this victory could be compromised by an foreign court accountable to no one but the corporations filing the suit.

In August, a corporate entity whose ultimate owners reside in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was established to consider the case.

The company is litigating against the UK for the profits it could have earned if the mine had received permission to proceed. We have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the high court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

On the same day that the panel on the mining lawsuit was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case so far, but it appears probable that he will utilise the tribunal to fight the penalties the UK levied against him following the invasion of Ukraine. He has filed a claim against a small nation for this reason, claiming $16bn: an amount representing half nation's annual revenue. Among the lawyers acting for him in that case? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists believe that the EU’s procrastination in using frozen Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine urgently requires.

False Assurances and Escalating Risks

The public was told that these scenarios could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to investment treaty upon trade deal and we have never seen a issue in the past.” An expert on this issue accused activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries should be concerned by such legal actions. Predictions that “when companies start to realise the authority they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by widespread derision.

That prediction has come to pass. This year, energy and extraction companies have initiated a record number of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – government attempts to halt climate breakdown. Firms have thus far won $114bn by using ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP