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How do you perceive our democratic process functions? Maybe along the lines of this. We elect MPs. They legislate on bills. When a majority is achieved, the bills pass into law. Legislation is upheld by the courts. That's it. Yet, that was how it used to work. Those days are over.

The Rise of Offshore Courts

Today, overseas companies, or the oligarchs who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals composed of business advocates. These proceedings are conducted behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, including businesses headquartered in this country. The door is open only to corporations operating from foreign soil.

When a secret court determines that a law or policy might diminish the corporation’s anticipated profits, it may order damages of vast sums, even billions.

These awards are based not on actual losses but funds the panel members conclude the company could potentially have made. The state could be forced to rescind the measure. It becomes discouraged from passing future laws in that area, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as firms observe each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The outcome? Sovereignty and democracy are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the decisions enacted by legislatures is that this provision has been written – without public consent, and typically amid conditions of extreme secrecy – inside international trade agreements.

A Specific Case: The Whitehaven Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The judge ruled that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine would have no consequence on climate commitments. The Labour government subsequently revoked the licence the previous administration had issued. Currently, this success faces being overturned by an offshore tribunal reporting to exclusively the companies filing the suit.

During August, a company whose final controllers are located in the tax haven lodged a claim challenging the UK government. Recently a dispute settlement body in the US capital was convened to adjudicate on it.

This firm is suing the UK for the profits it would have generated if the mine had received permission to commence operations. Citizens have no idea how much this might be. What legal team is representing it against the UK administration? An elected representative, and former attorney-general in the Conservative government, that great patriot Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he will utilise the tribunal to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg with similar intent, demanding $16bn: half that nation's yearly budget. Included in the counsel on his side? the wife of a former prime minister, wife of the previous PM.

Trade specialists believe that the EU’s delay in using frozen Russian assets as security for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

The public was told that these events wouldn’t happen. Previously, a senior politician, advocating for the biggest and most dangerous of all these agreements, declared: “The UK has signed trade agreement upon trade deal and there has never been a case in the past.” An adviser on this issue accused critics of “scaremongering … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations should be concerned by such legal actions. Predictions that “when companies start to realise the power they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by general mockery.

That warning has come to pass. In the current period, oil and gas and mining firms have initiated a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – official measures to stop climate breakdown. Companies have to date won vast sums via ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP