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Can you perceive our democratic process works? It could be similar to this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. That's it. However, that used to be how it used to work. Those days are over.

The Advent of Offshore Tribunals

Nowadays, international firms, along with the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at private courts composed of commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these bodies allow no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even businesses based in this country. They are open solely for businesses operating from foreign soil.

Should an arbitration panel rules that a legislative action might diminish the corporation’s anticipated profits, it can award damages of vast sums, running into billions.

These sums represent not real financial harm but money the tribunal officials determine the company would perhaps have made. The state might be compelled to abandon its policy. It becomes deterred from enacting future policies in that area, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of legal actions are being brought, as companies learn from each other, and investment funds finance suits in exchange for a share of the takings. The consequence? Democratic sovereignty and democratic governance are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the rulings taken by elected bodies is that this stipulation has been inserted – without democratic mandate, and typically amid an atmosphere of total confidentiality – inside bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the High Court. The presiding officer ruled that proposals to open the first deep coalmine in the UK for three decades, in northwest England, were wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have zero effect on climate commitments. The new government subsequently revoked the licence the former government had granted. Today, this legal outcome is under threat by an secret arbitration panel answering to exclusively the corporations filing the suit.

In August, a corporate entity whose beneficial owners are based in the tax haven filed a lawsuit against the UK government. Recently a dispute settlement body in the United States was convened to hear it.

This firm is suing the UK for the revenue it might have made if the mine had been allowed to proceed. Citizens have no clear indication how much this might be. Which individual is serving as its counsel challenging the British government? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the domestic court upholds it, then a overseas corporation challenges it through an secretive private court, and a member of our parliament acts on its behalf.

An Oligarch's Case

On the same day that the tribunal on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case at present, but it appears probable that he may employ the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the Russian aggression. He has filed a claim against Luxembourg with similar intent, seeking a colossal sum: an amount representing half state's yearly income. Part of the lawyers representing him there? the wife of a former prime minister, spouse of the previous PM.

International law scholars contend that the EU’s procrastination in using frozen oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over democratic administrations could be blocking the money Ukraine desperately needs.

Misleading Claims and Escalating Costs

Politicians promised that these scenarios wouldn’t happen. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, stated: “The UK has signed trade deal after trade deal and there has not been a case in the past.” An adviser on this matter labelled activists of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “once firms start to realise the authority they now possess, they will shift their focus from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning has now materialised. In the current period, oil and gas and extraction companies have initiated a unprecedented number of cases against nations rich and poor, contesting – as in the case of the Whitehaven project – state efforts to prevent climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP