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Can you reckon our democratic process works? Maybe along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. That's it. However, that was how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, along with the billionaires that control them, can sue nation states for the regulations they pass, at private courts staffed by corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or legal review. You or I cannot take a case to them, just as our government, or even businesses headquartered in this country. Access is granted exclusively to entities registered abroad.

When a secret court determines that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, even billions.

These awards represent not actual losses but compensation the panel members decide the company could potentially have made. The state could be forced to rescind the measure. It becomes deterred from enacting future policies along the same lines, for fear of facing litigation.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as corporations take cues from each other, and private equity fund legal actions in exchange for a share of the awards. The consequence? National sovereignty and democratic governance are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices enacted by elected bodies is that this clause has been incorporated – absent public approval, and frequently under a climate of profound opacity – into bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for 30 years, in Cumbria, were wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have zero effect on our carbon budgets. The Labour government subsequently revoked the licence the Tories had issued. Now, this legal outcome could be compromised by an offshore tribunal reporting to exclusively the corporations filing the suit.

Last August, a company whose ultimate owners reside in the tax haven filed a lawsuit versus the UK government. The previous week a tribunal in the US capital was convened to hear it.

The claimant is suing the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has little idea how much this sum represents. Which individual is acting on its behalf in opposition to the state? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The state makes a decision, the national judiciary upholds it, then a overseas corporation disputes it through an unaccountable private court, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it seems likely that he will utilise the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has previously filed a claim against a small nation with similar intent, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Included in the lawyers representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists argue that the EU’s hesitation in utilising seized state funds as collateral for its financial support package arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over elected governments might be preventing the finance Ukraine desperately needs.

False Assurances and Growing Costs

We were assured that such things could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all such treaties, declared: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An expert on this topic accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear such legal actions. Warnings that “once firms grasp the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were met with widespread derision.

That warning has now materialised. This year, energy and mining firms have initiated a unprecedented number of suits against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – state efforts to halt climate breakdown. Companies have thus far won vast sums via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP