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How do you understand our democratic process functions? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills become law. The law is upheld by the courts. That's it. However, that’s how it operated in the past. Those days are over.

The Rise of Offshore Tribunals

In the modern era, foreign corporations, along with the oligarchs who own them, can sue nation states for the laws they pass, at secret arbitration panels made up of corporate lawyers. The cases are held in secret. Differing from national judiciaries, these bodies grant no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, including enterprises headquartered in this country. The door is open only to businesses based overseas.

When a secret court finds that a government measure might diminish the corporation’s expected profits, it can award damages of hundreds of millions, even billions.

These awards constitute not real financial harm but money the arbitrators determine the company could potentially have made. The state could be forced to rescind the measure. It becomes deterred from passing future laws of a similar nature, due to the risk of being sued.

A Process Growing Exponentially

Unprecedented levels of legal actions are being filed, as companies observe each other, and investment funds fund legal actions for a share of a share of the takings. The result? National sovereignty and democracy are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the decisions taken by legislatures is that this stipulation has been inserted – absent public approval, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

Last year, environmental campaigners won a great victory at the senior court. The presiding officer found that plans to dig the first deep coalmine in the UK for three decades, in northwest England, were illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine would have zero effect on climate commitments. The Labour government then withdrew the permission the former government had issued. Currently, this success could be compromised by an foreign court answering to no one but the companies filing the suit.

In August, a company whose ultimate owners are based in the tax haven initiated proceedings challenging the UK government. Last week a arbitration panel in the United States was established to consider the case.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had received permission to commence operations. The public has little idea how much this could amount to. Which individual is serving as its counsel against the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The administration makes a decision, the domestic court upholds it, then a international entity challenges it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Case

Simultaneously that the court on the coal mine dispute was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he’ll use the tribunal to fight the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing a small nation for this reason, claiming $16bn: an amount representing half state's yearly budget. Included in the legal team representing him there? a prominent lawyer, wife of the ex-UK leader.

Trade specialists contend that the EU’s delay in leveraging immobilised state funds as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over sovereign states may be obstructing the money Ukraine urgently requires.

False Assurances and Growing Costs

The public was told that such things wouldn’t happen. Previously, a government leader, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal after trade deal and there has never been a case in the past.” A consultant on this issue described critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms grasp the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That threat is now a reality. In the current period, oil and gas and resource corporations have lodged a record number of cases against nations rich and poor, contesting – similar to the Whitehaven project – official measures to prevent environmental catastrophe. Firms have thus far won vast sums via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP