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How do you reckon our democratic process functions? Maybe something like this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills become law. Statutes are enforced by the courts. Simple as that. However, that’s how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

Today, foreign corporations, along with the oligarchs behind them, have the power to sue nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases take place in secret. Unlike our courts, these panels grant no opportunity to appeal or judicial review. The general public cannot take a case to them, just as our government, or even companies based in this country. Access is granted only to businesses registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it may order compensation of hundreds of millions, even billions.

These awards constitute not actual losses but compensation the tribunal officials decide the company would perhaps have made. The state may have to rescind the measure. It is discouraged from introducing similar legislation in that area, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of legal actions are being initiated, as firms observe each other, and hedge funds finance suits in exchange for a share of the takings. The result? Sovereignty and democratic governance are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the decisions taken by legislatures is that this stipulation has been inserted – absent public approval, and often in a climate of total confidentiality – within trade treaties.

A Concrete Case: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the high court. The judge determined that proposals to excavate the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have no impact on our carbon budgets. The new government subsequently revoked the permission the Tories had approved. Currently, this success is under threat by an foreign court answering to exclusively the entities bringing the case.

In August, a company whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. Recently a tribunal in the US capital was established to consider the case.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to proceed. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel challenging the UK administration? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a international entity contests it through an secretive private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the court on the mining lawsuit was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case at present, but it seems likely that he will utilise the arbitration process to contest the restrictions the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against another European state with similar intent, claiming $16bn: half that government’s yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations could be blocking the funds Ukraine critically depends on.

Empty Promises and Escalating Costs

We were assured that these scenarios could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed trade deal upon trade deal and there has never been a issue in the past.” An adviser on this topic labelled activists of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about these lawsuits. Predictions that “when companies grasp the influence they now possess, they will redirect their efforts from the weak nations to the developed economies” were met with general mockery.

That prediction is now a reality. This year, oil and gas and mining firms have filed a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have been awarded the majority. That represents the combined GDP