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How do you understand our democratic process works? Maybe similar to this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills become law. Statutes is maintained by the courts. That's it. However, that used to be how it once functioned. Those days are over.

The Rise of Offshore Tribunals

In the modern era, foreign corporations, along with the billionaires behind them, are able to litigate against governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these tribunals grant no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including enterprises based in this country. Access is granted only to businesses operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it may order compensation of vast sums, potentially billions.

This compensation are based not on actual losses but money the arbitrators conclude the company could potentially have made. The administration could be forced to abandon its policy. It will be hesitant to enacting future policies of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of legal actions are being filed, as firms observe each other, and private equity bankroll lawsuits in exchange for a cut of the takings. The consequence? National sovereignty and democracy are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the choices made by legislatures is that this provision has been incorporated – absent public approval, and frequently under a climate of extreme secrecy – inside international trade agreements.

A Concrete Case: The Cumbrian Coalmine

A year ago, activists secured a significant win at the high court. The presiding officer found that plans to dig the first new deep coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the previous government, which had accepted the bizarre claim that the mine would have no impact on climate commitments. The incoming administration later cancelled the licence the former government had issued. Today, this victory faces being overturned by an secret arbitration panel reporting to no one but the corporations bringing the case.

Last August, a firm whose ultimate owners are based in the tax haven initiated proceedings against the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is litigating against the UK for the money it might have made if the mine had been allowed to proceed. We have little idea how much this could amount to. What legal team is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The administration passes a law, the high court validates it, then a international entity challenges it through an undemocratic private court, and a sitting MP acts on its behalf.

A Sanctions Case

Simultaneously that the tribunal on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case at present, but it appears probable that he may employ the tribunal to challenge the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has filed a claim against Luxembourg with similar intent, demanding sixteen billion dollars: half that state's annual revenue. Among the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen state funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the funds Ukraine critically depends on.

Empty Promises and Mounting Costs

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, advocating for the most significant and hazardous of all these agreements, declared: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An adviser on this topic accused critics of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Cautionary notes that “when companies begin to understand the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were met with widespread derision.

That warning has now materialised. In the current period, oil and gas and extraction companies have initiated a historic level of claims against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – government attempts to halt environmental catastrophe. Companies have to date won $114bn through ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP