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Can you perceive our democratic process functions? It could be similar to this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills become law. Legislation are enforced by the courts. That's it. Well, that used to be how it used to work. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, and the billionaires that control them, can sue nation states for the laws they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are conducted in secret. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even companies headquartered in this country. The door is open exclusively to businesses operating from foreign soil.

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

These awards represent not actual losses but funds the arbitrators decide the company might otherwise have made. The administration may have to drop the legislation. It is deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A System Running Rampant

Historically high figures of legal actions are being brought, as companies learn from each other, and hedge funds finance suits in return for a portion of the settlements. The outcome? Democratic sovereignty and democracy are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the decisions enacted by legislatures is that this stipulation has been inserted – without public consent, and often in conditions of total confidentiality – inside trade treaties.

A Real-World Example: The UK Coalmine

A year ago, a conservation group achieved a major legal triumph at the High Court. The judge found that proposals to excavate the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have had zero effect on our carbon budgets. The new government subsequently revoked the licence the Tories had issued. Now, this victory faces being overturned by an foreign court reporting to no one but the corporations bringing the case.

Last August, a firm whose final controllers are located in the tax haven filed a lawsuit challenging the UK government. Recently a tribunal in Washington DC was established to consider the case.

The company is seeking compensation from the UK for the money it would have generated if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is acting on its behalf challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The state makes a decision, the high court supports it, then a international entity disputes it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case at present, but it appears probable that he’ll use the ISDS mechanism to challenge the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has started suing another European state on these grounds, claiming $16bn: equivalent to half of state's yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, wife of the previous PM.

Trade specialists contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states could be blocking the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that these events could not occur. Years ago, a senior politician, championing the biggest and most dangerous of all investment pacts, declared: “The UK has signed investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this issue accused activists of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “once firms grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were met with scepticism.

That threat has come to pass. This year, fossil fuel and extraction companies have filed a record number of claims against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Firms have so far won vast sums via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP