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How do you perceive our democratic process works? It could be something like this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. Legislation are enforced by the courts. End of story. Well, that was how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

Nowadays, foreign corporations, along with the billionaires that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels staffed by business advocates. Such disputes are conducted in secret. Unlike our courts, these tribunals provide no opportunity to appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even enterprises operating from this country. Access is granted only to businesses operating from foreign soil.

Should an arbitration panel determines that a legislative action may compromise the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

This compensation represent not actual losses but funds the panel members decide the company could potentially have made. The government might be compelled to abandon its policy. It becomes discouraged from passing future laws of a similar nature, due to the risk of being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being initiated, as companies observe each other, and investment funds fund legal actions for a share of a portion of the awards. The consequence? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the rulings taken by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of profound opacity – within trade treaties.

A Specific Example: The Cumbrian Coalmine

Last year, activists won a great victory at the High Court. The justice ruled that schemes to dig the first deep coalmine in the UK for three decades, in northwest England, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the licence the former government had issued. Today, this victory could be compromised by an foreign court reporting to only the companies petitioning it.

Last August, a firm whose final controllers are based in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in the US capital was set up to consider the case.

The company is litigating against the UK for the revenue it could have earned if the mine had received permission to go ahead. We have no clear indication how much this sum represents. Which individual is serving as its counsel against the British government? A member of parliament, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court supports it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

On the same day that the panel on the mining lawsuit was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case at present, but it appears probable that he’ll use the arbitration process to contest the restrictions the UK levied against him subsequent to the war in Ukraine. He has already filed a claim against another European state for this reason, seeking $16bn: equivalent to half of nation's yearly income. Part of the lawyers acting for him in that case? Cherie Blair, spouse of the previous PM.

International law scholars believe that the EU’s delay in leveraging immobilised state funds as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.

Misleading Claims and Growing Risks

Politicians promised that these events were not possible. Previously, a former prime minister, promoting the largest and riskiest of all these agreements, told us: “The UK has signed trade deal upon trade deal and we have never seen a issue in the past.” A consultant on this matter described critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms grasp the authority they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with widespread derision.

That warning has come to pass. Recently, energy and mining firms have filed a historic level of claims against nations rich and poor, opposing – like the example of the Whitehaven project – official measures to prevent climate breakdown. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP