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How do you reckon our democratic process functions? It could be something like this. We elect MPs. They vote on bills. If a majority is obtained, the bills become law. Legislation are enforced by the courts. End of story. Well, that was how it used to work. Not anymore.

The Emergence of Offshore Tribunals

In the modern era, international firms, along with the wealthy individuals that control them, are able to litigate against governments for the policies they pass, at private courts made up of corporate lawyers. These proceedings take place away from public scrutiny. Unlike our courts, these tribunals provide no opportunity to 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. The door is open only to corporations based overseas.

Should an arbitration panel rules that a law or policy could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not actual losses but money the tribunal officials determine the company might otherwise have made. The government could be forced to abandon its policy. It is hesitant to enacting future policies in that area, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of cases are being initiated, as firms take cues from each other, and investment funds finance suits in exchange for a portion of the settlements. The result? Democratic sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the decisions taken by elected bodies is that this stipulation has been inserted – without public consent, and frequently under conditions of profound opacity – inside trade treaties.

A Specific Instance: The UK Coal Mine

Last year, activists achieved a major legal triumph at the high court. The judge determined that schemes to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine would have no impact on climate commitments. The incoming administration later cancelled the permission the Tories had issued. Today, this victory could be compromised by an foreign court accountable to only the entities filing the suit.

In August, a company whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. Last week a arbitration panel in the US capital was established to consider the case.

This firm is litigating against the UK for the revenue 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 serving as its counsel against the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a overseas corporation contests it through an undemocratic private court, and a sitting MP acts on its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know little of the case so far, but it is highly possible that he will utilise the ISDS mechanism to fight the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing a small nation for this reason, demanding a colossal sum: half that nation's yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, married to the ex-UK leader.

Legal experts argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over sovereign states might be preventing the money Ukraine critically depends on.

Empty Promises and Mounting Risks

Politicians promised that these scenarios were not possible. Previously, a senior politician, advocating for the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade agreement upon trade deal and there has not been a problem in the past.” An expert on this issue described campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries had to worry about these lawsuits. Warnings that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has come to pass. This year, fossil fuel and resource corporations have lodged a unprecedented number of cases against nations rich and poor, opposing – like the example of the UK mine – official measures to halt global warming. Corporations have thus far won vast sums through ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP