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How do you perceive our democratic process works? Maybe along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

In the modern era, overseas companies, and the oligarchs who own them, are able to litigate against elected administrations for the regulations they pass, at private courts made up of business advocates. Such disputes are held in secret. In contrast to domestic courts, these bodies provide no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even companies based in this country. They are open solely for corporations based overseas.

If a tribunal finds that a law or policy may compromise the corporation’s projected profits, it may order damages of hundreds of millions, running into billions.

This compensation constitute not actual losses but compensation the panel members determine the company could potentially have made. The government could be forced to drop the legislation. It becomes hesitant to passing future laws in that area, for fear of facing litigation.

A Process Growing Exponentially

Record numbers of cases are being brought, as companies learn from each other, and private equity finance suits in return for a share of the settlements. The outcome? National sovereignty and popular rule are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the rulings made by legislatures is that this clause has been inserted – without democratic mandate, and typically amid conditions of total confidentiality – inside trade treaties.

A Real-World Instance: The UK Coalmine

A year ago, environmental campaigners won a great victory at the senior court. The judge ruled that schemes to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have no consequence on climate commitments. The Labour government then withdrew the licence the previous administration had granted. Today, this success could be compromised by an foreign court accountable to no one but the entities petitioning it.

During August, a firm whose final controllers are based in the Cayman Islands lodged a claim versus the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been permitted to go ahead. Citizens have no clear indication how much this might be. Who is acting on its behalf challenging the state? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The state passes a law, the high court upholds it, then a overseas corporation challenges it through an unaccountable private court, and a member of our parliament works for its behalf.

A Sanctions Case

Simultaneously that the court on the coalmine case was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case at present, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK enacted against him subsequent to the war in Ukraine. He has previously started suing Luxembourg with similar intent, seeking sixteen billion dollars: half that state's yearly income. Included in the lawyers representing him there? Cherie Blair, spouse of the former British prime minister.

Trade specialists believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over elected governments could be blocking the money Ukraine desperately needs.

Misleading Claims and Escalating Costs

We were assured that these events were not possible. Previously, a senior politician, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to investment treaty upon trade deal and we have never seen a problem in the past.” An expert on this topic labelled campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries should be concerned by these lawsuits. Predictions that “as corporations start to realise the influence bestowed upon them, they will shift their focus from the poorer states to the strong ones” were met with widespread derision.

That threat is now a reality. This year, energy and resource corporations have lodged a record number of suits against nations rich and poor, challenging – like the example of the UK mine – government attempts to stop climate breakdown. Firms have thus far won $114bn through ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP