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What is your perceive our democratic process operates? Maybe something like this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. Yet, that used to be how it operated in the past. No longer.

The Rise of Offshore Tribunals

Nowadays, foreign corporations, along with the wealthy individuals that control them, have the power to sue governments for the laws they pass, at private courts made up of business advocates. These proceedings are conducted behind closed doors. Unlike our courts, these bodies provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, including enterprises headquartered in this country. The door is open only to entities registered abroad.

If a tribunal determines that a government measure could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions, potentially billions.

This compensation represent not actual losses but funds the arbitrators determine the company would perhaps have made. The government could be forced to abandon its policy. It becomes hesitant to passing future laws along the same lines, due to the risk of being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being brought, as firms observe each other, and private equity bankroll lawsuits in exchange for a share of the settlements. The consequence? Democratic sovereignty and democracy are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the choices made by parliaments is that this provision has been written – absent public approval, and frequently under an atmosphere of extreme secrecy – inside trade treaties.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the high court. The judge ruled that proposals to open the first deep coalmine in the UK for three decades, in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had zero effect on climate commitments. The Labour government subsequently revoked the consent the previous administration had approved. Currently, this legal outcome is under threat by an offshore tribunal reporting to exclusively the companies filing the suit.

In August, a company whose final controllers are based in the Cayman Islands lodged a claim against the UK government. The previous week a arbitration panel in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to commence operations. Citizens have little idea how much this might be. What legal team is acting on its behalf in opposition to the British government? A sitting MP, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court supports it, then a foreign company challenges it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the mining lawsuit was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he may employ the ISDS mechanism to challenge the restrictions the UK enacted against him subsequent to the Russian aggression. He has previously initiated proceedings against another European state with similar intent, claiming $16bn: an amount representing half state's yearly income. Among the legal team on his side? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s delay in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine urgently requires.

Empty Promises and Escalating Costs

The public was told that these events could not occur. Previously, a senior politician, championing the biggest and most dangerous of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An expert on this matter described activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Warnings that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with widespread derision.

That threat is now a reality. This year, energy and resource corporations have lodged a unprecedented number of suits against nations across the economic spectrum, contesting – similar to the UK mine – state efforts to halt global warming. Corporations have to date won $114bn by using ISDS, of which energy giants have secured the majority. That equates to the combined GDP