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How do you perceive our democratic process functions? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Well, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, or the wealthy individuals that control them, are able to litigate against nation states for the regulations they pass, at private courts staffed by commercial attorneys. Such disputes are conducted in secret. Differing from national judiciaries, these panels provide no right of appeal or judicial review. You or I cannot take a case to them, nor can our government, including enterprises headquartered in this country. They are open only to corporations registered abroad.

If a tribunal determines that a government measure may compromise the corporation’s expected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards constitute not real financial harm but funds the tribunal officials decide the company could potentially have made. The state may have to drop the legislation. It becomes deterred from enacting future policies in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as corporations learn from each other, and investment funds finance suits for a share of a share of the awards. The result? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the rulings made by legislatures is that this clause has been incorporated – without public consent, and frequently under a climate of extreme secrecy – inside bilateral investment treaties.

A Real-World Instance: The UK Coalmine

Last year, a conservation group won a great victory at the High Court. The justice found that schemes to open the first deep coalmine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine could have no consequence on our carbon budgets. The Labour government subsequently revoked the permission the former government had issued. Now, this victory is under threat by an foreign court accountable to no one but the entities bringing the case.

In August, a corporate entity whose final controllers are based in the tax haven lodged a claim challenging the UK government. Recently a arbitration panel in the United States was convened to consider the case.

This firm is litigating against the UK for the revenue it could have earned if the mine had received permission to go ahead. We have little idea how much this could amount to. Who is acting on its behalf challenging the British government? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK levied against him subsequent to the Russian aggression. He has previously filed a claim against a small nation on these grounds, claiming $16bn: half that nation's yearly income. Included in the counsel acting for him in that case? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts believe that the EU’s delay in using frozen oligarchs' funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states could be blocking the finance Ukraine desperately needs.

Empty Promises and Growing Threats

We were assured that such things could not occur. Previously, a government leader, championing the largest and riskiest of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this matter described campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries had to worry about ISDS claims. Warnings that “when companies begin to understand the power they now possess, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with general mockery.

That prediction has now materialised. This year, fossil fuel and extraction companies have lodged a historic level of suits against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP