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How do you understand our democratic process operates? Perhaps similar to this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills pass into law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Advent of Offshore Tribunals

Nowadays, foreign corporations, along with the oligarchs behind them, can sue nation states for the laws they pass, at secret arbitration panels made up of corporate lawyers. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies grant no opportunity to appeal or legal review. The general public are unable to file a case to them, just as our government, including businesses headquartered in this country. They are open exclusively to entities based overseas.

Should an arbitration panel determines that a legislative action could harm the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These awards constitute not real financial harm but funds the arbitrators determine the company might otherwise have made. The state may have to drop the legislation. It becomes deterred from enacting future policies in that area, worried about facing litigation.

A System Spiralling Out of Control

Historically high figures of disputes are being brought, as corporations learn from each other, and private equity bankroll lawsuits for a share of a portion of the takings. The consequence? Sovereignty and democratic governance are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede a country's own laws and the decisions made by elected bodies is that this provision has been inserted – absent public approval, and often in a climate of profound opacity – within trade treaties.

A Specific Example: The UK Coalmine

Last year, environmental campaigners won a great victory at the senior court. The judge found that plans to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The new government later cancelled the consent the Tories had granted. Now, this victory is under threat by an foreign court reporting to only the entities petitioning it.

In August, a company whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. Recently a tribunal in Washington DC was established to hear it.

This firm is suing the UK for the profits it might have made if the mine had been allowed to proceed. The public has no idea how much this could amount to. Which individual is representing it in opposition to the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a foreign company contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Case

Simultaneously that the court on the coalmine case was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he will utilise the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the Russian aggression. He has already initiated proceedings against Luxembourg with similar intent, claiming a colossal sum: equivalent to half of nation's yearly income. Among the counsel acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists believe that the EU’s delay in leveraging immobilised Russian assets as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine urgently requires.

Misleading Claims and Growing Costs

The public was told that such things wouldn’t happen. In 2014, a senior politician, promoting the most significant and hazardous of all these agreements, stated: “We’ve signed trade deal upon trade deal and we have never seen a problem in the past.” An adviser on this topic described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “as corporations begin to understand the authority they now possess, they will shift their focus from the vulnerable countries to the strong ones” were met with widespread derision.

That warning has come to pass. In the current period, oil and gas and mining firms have filed a record number of cases against nations rich and poor, challenging – similar to the Whitehaven project – government attempts to halt climate breakdown. Firms have thus far won vast sums via ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP