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How do you perceive our democratic process works? It could be similar to this. We elect MPs. They legislate on bills. Should a majority is secured, the bills become law. Statutes is upheld by the courts. End of story. Well, that was how it once functioned. No longer.

The Emergence of Offshore Tribunals

Nowadays, international firms, or the wealthy individuals behind them, can sue governments for the laws they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings take place behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even companies headquartered in this country. They are open solely for corporations registered abroad.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it may order compensation of vast sums, potentially billions.

These awards are based not on real financial harm but compensation the panel members decide the company might otherwise have made. The government could be forced to drop the legislation. It will be hesitant to enacting future policies along the same lines, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being brought, as companies take cues from each other, and hedge funds fund legal actions in exchange for a cut of the awards. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the decisions made by elected bodies is that this provision has been written – without democratic mandate, and often in conditions of extreme secrecy – inside trade treaties.

A Specific Example: The UK Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge found that schemes to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have no consequence on national carbon targets. The Labour government subsequently revoked the licence the previous administration had approved. Today, this success faces being overturned by an foreign court accountable to no one but the entities petitioning it.

In August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC was convened to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have no idea how much this sum represents. Who is serving as its counsel in opposition to the UK administration? An elected representative, and previous senior legal advisor in the previous government, that great patriot the MP. The state makes a decision, the high court upholds it, then a overseas corporation disputes it through an secretive offshore tribunal, and a elected official represents its behalf.

The Russian Case

Concurrently that the panel on the coal mine dispute was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case so far, but it is highly possible that he may employ the ISDS mechanism to challenge the sanctions the UK levied against him after the war in Ukraine. He has previously initiated proceedings against Luxembourg on these grounds, claiming a colossal sum: an amount representing half state's annual revenue. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

Misleading Claims and Growing Costs

The public was told that such things could not occur. In 2014, a government leader, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An adviser on this matter described critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by ISDS claims. Cautionary notes that “as corporations begin to understand the influence bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were met with scepticism.

That threat has come to pass. Recently, oil and gas and resource corporations have lodged a unprecedented number of claims against nations both wealthy and developing, contesting – like the example of the UK mine – state efforts to stop climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained the majority. That equates to the combined GDP