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How do you perceive our democratic process functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, along with the billionaires that control them, have the power to sue governments for the policies they pass, at secret arbitration panels composed of corporate lawyers. The cases are held away from public scrutiny. Differing from national judiciaries, these panels grant no opportunity to appeal or judicial review. You or I cannot take a case to them, and neither can our government, including enterprises headquartered in this country. They are open only to businesses operating from foreign soil.

If a tribunal rules that a law or policy could harm the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These sums represent not tangible damages but funds the panel members decide the company would perhaps have made. The state might be compelled to drop the legislation. It becomes hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A System Running Rampant

Historically high figures of disputes are being initiated, as corporations learn from each other, and investment funds finance suits in exchange for a share of the awards. The consequence? Sovereignty and democratic governance are turning into too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings taken by parliaments is that this stipulation has been written – absent public approval, and often in an atmosphere of extreme secrecy – within trade treaties.

A Real-World Example: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The presiding officer determined that schemes to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on climate commitments. The new government later cancelled the licence the Tories had approved. Currently, this legal outcome could be compromised by an foreign court accountable to exclusively the corporations filing the suit.

During August, a company whose ultimate owners are located in the Cayman Islands initiated proceedings against the UK government. Recently a dispute settlement body in Washington DC was established to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have no idea how much this might be. Who is acting on its behalf in opposition to the state? An elected representative, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the national judiciary validates it, then a foreign company disputes it through an unaccountable offshore tribunal, and a elected official represents its behalf.

A Sanctions Case

On the same day that the panel on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the sanctions the UK enacted against him following the war in Ukraine. He has already filed a claim against a small nation on these grounds, demanding sixteen billion dollars: half that state's annual revenue. Among the counsel acting for him in that case? Cherie Blair, married to the ex-UK leader.

Legal experts contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Escalating Threats

We were assured that these events were not possible. In 2014, a government leader, championing the largest and riskiest of all investment pacts, declared: “The UK has signed trade agreement upon trade deal and there has not been a case in the past.” A consultant on this topic described activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states had to worry about these lawsuits. Warnings that “when companies start to realise the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were met with general mockery.

That prediction has come to pass. In the current period, energy and resource corporations have filed a historic level of cases against nations across the economic spectrum, opposing – like the example of the UK mine – official measures to halt global warming. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP