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Can you reckon our democratic process operates? Maybe along the lines of this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills become law. The law are enforced by the courts. That's it. Well, that used to be how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Today, international firms, and the wealthy individuals who own them, have the power to sue elected administrations for the laws they pass, at offshore tribunals staffed by commercial attorneys. The cases are held in secret. In contrast to domestic courts, these tribunals grant no right of appeal or legal review. You or I are barred from bringing a case to them, just as our government, including businesses based in this country. The door is open only to businesses based overseas.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of vast sums, even billions.

These awards represent not tangible damages but funds the arbitrators determine the company would perhaps have made. The government may have to drop the legislation. It is deterred from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being filed, as corporations learn from each other, and hedge funds finance suits for a share of a cut of the awards. The outcome? Sovereignty and democratic governance are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the decisions taken by legislatures is that this stipulation has been inserted – absent public approval, and often in an atmosphere of extreme secrecy – within trade treaties.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, a conservation group won a great victory at the senior court. The justice ruled that schemes to dig the first deep coalmine in the UK for 30 years, in northwest England, had been unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine would have no impact on our carbon budgets. The Labour government then withdrew the consent the previous administration had issued. Today, this victory faces being overturned by an foreign court reporting to exclusively the entities petitioning it.

During August, a corporate entity whose final controllers reside in the Cayman Islands lodged a claim versus the UK government. Last week a arbitration panel in Washington DC was convened to adjudicate on it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Who is acting on its behalf against the UK administration? A sitting MP, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary supports it, then a international entity challenges it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the court on the coalmine case was established, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case at present, but it is highly possible that he will utilise the tribunal to contest the restrictions the UK enacted against him after the war in Ukraine. He has initiated proceedings against another European state for this reason, claiming sixteen billion dollars: half that government’s yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized state funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over elected governments could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Costs

We were assured that these events wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all such treaties, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” An adviser on this topic labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by such legal actions. Predictions that “as corporations grasp the influence they now possess, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That prediction is now a reality. In the current period, energy and extraction companies have lodged a record number of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have been awarded the majority. That is equivalent to the combined GDP