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How do you perceive our democratic process works? Maybe something like 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. That's it. However, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the billionaires who own them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of business advocates. Such disputes are conducted in secret. Unlike our courts, these tribunals grant no right of appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, including businesses based in this country. Access is granted solely for businesses operating from foreign soil.

If a tribunal rules that a law or policy could harm the corporation’s projected profits, it may order damages of hundreds of millions, even billions.

These sums represent not real financial harm but compensation the tribunal officials conclude the company could potentially have made. The state might be compelled to abandon its policy. It will be deterred from passing future laws in that area, worried about facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of cases are being initiated, as firms take cues from each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The result? Democratic sovereignty and democracy are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the rulings enacted by elected bodies is that this provision has been incorporated – without democratic mandate, and frequently under an atmosphere of profound opacity – within international trade agreements.

A Specific Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The justice determined that proposals to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine would have no consequence on climate commitments. The incoming administration subsequently revoked the permission the former government had granted. Currently, this legal outcome faces being overturned by an foreign court accountable to only the entities bringing the case.

In August, a corporate entity whose beneficial owners are located in the offshore financial centre lodged a claim challenging the UK government. Recently a dispute settlement body in the United States was convened to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had been permitted to proceed. We have no idea how much this sum represents. Who is representing it challenging the UK administration? A member of parliament, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The administration passes a law, the domestic court supports it, then a overseas corporation challenges it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the mining lawsuit was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know scarce of the case to date, but it seems likely that he may employ the ISDS mechanism to fight the penalties the UK enacted against him following the war in Ukraine. He has started suing another European state on these grounds, claiming a colossal sum: equivalent to half of state's yearly budget. Included in the counsel acting for him in that case? Cherie Blair, wife of the former British prime minister.

Trade specialists contend that the EU’s delay in utilising seized Russian assets as collateral for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over elected governments may be obstructing the funds Ukraine desperately needs.

Empty Promises and Mounting Costs

Politicians promised that such things could not occur. Previously, a senior politician, championing the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade deal after trade deal and there has never been a issue in the past.” An adviser on this matter described critics of “alarmism … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations needed to fear such legal actions. Warnings that “as corporations start to realise the influence bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were dismissed with general mockery.

That prediction is now a reality. In the current period, energy and mining firms have lodged a historic level of cases against nations rich and poor, opposing – similar to the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have thus far won vast sums via ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP