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What is your reckon our democratic process works? It could be along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Statutes are enforced by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Advent of Offshore Tribunals

Today, overseas companies, or the billionaires behind them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are held away from public scrutiny. Differing from national judiciaries, these bodies grant no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises operating from this country. They are open solely for entities based overseas.

When a secret court finds that a government measure could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These awards represent not tangible damages but compensation the panel members decide the company would perhaps have made. The state could be forced to abandon its policy. It becomes hesitant to introducing similar legislation in that area, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of disputes are being filed, as corporations learn from each other, and investment funds bankroll lawsuits in return for a cut of the awards. The consequence? National sovereignty and democratic governance are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the choices enacted by parliaments is that this stipulation has been incorporated – without democratic mandate, and often in an atmosphere of extreme secrecy – within international trade agreements.

A Concrete Example: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The judge found that proposals to dig the first deep coalmine in the UK for three decades, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no consequence on our carbon budgets. The new government then withdrew the licence the Tories had issued. Today, this legal outcome could be compromised by an offshore tribunal answering to no one but the companies bringing the case.

During August, a corporate entity whose ultimate owners are based in the tax haven initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was convened to adjudicate on it.

The company is litigating against the UK for the profits it could have earned if the mine had been permitted to proceed. The public has little idea how much this could amount to. Which individual is acting on its behalf against the UK administration? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The state makes a decision, the high court supports it, then a international entity disputes it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he will utilise the arbitration process to fight the sanctions the UK levied against him after the war in Ukraine. He has initiated proceedings against another European state with similar intent, claiming a colossal sum: an amount representing half nation's yearly budget. Among the legal team on his side? the wife of a former prime minister, married to the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over sovereign states could be blocking the funds Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that such things were not possible. In 2014, a former prime minister, championing the most significant and hazardous of all such treaties, stated: “The UK has signed trade deal upon trade deal and there has never been a problem in the past.” A consultant on this matter described critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about such legal actions. Predictions that “once firms grasp the authority bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were met with general mockery.

That warning is now a reality. Recently, fossil fuel and mining firms have initiated a historic level of cases against nations rich and poor, contesting – similar to the Whitehaven project – state efforts to halt global warming. Firms have thus far won $114bn through ISDS, of which oil majors have been awarded the majority. That is equivalent to the combined GDP