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How do you perceive our democratic process operates? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. That's it. However, that was how it used to work. Those days are over.

The Rise of Offshore Tribunals

In the modern era, international firms, along with the wealthy individuals that control them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these panels provide no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises based in this country. The door is open only to businesses registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, running into billions.

These sums are based not on tangible damages but money the tribunal officials conclude the company might otherwise have made. The administration may have to drop the legislation. It is hesitant to enacting future policies in that area, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as corporations learn from each other, and investment funds finance suits in return for a portion of the awards. The outcome? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the choices taken by elected bodies is that this provision has been inserted – without public consent, and frequently under a climate of extreme secrecy – within international trade agreements.

A Concrete Instance: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The presiding officer found that schemes to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine would have zero effect on national carbon targets. The new government subsequently revoked the permission the Tories had granted. Today, this success faces being overturned by an foreign court answering to only the entities bringing the case.

During August, a firm whose final controllers reside in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was convened to adjudicate on it.

The company is suing the UK for the money it could have earned if the mine had been permitted to proceed. We have no idea how much this could amount to. Which individual is representing it in opposition to the UK administration? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The state makes a decision, the domestic court validates it, then a overseas corporation challenges it through an secretive arbitration panel, and a elected official acts on its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the coalmine case was convened, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case to date, but it appears probable that he’ll use the tribunal to fight the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already filed a claim against a small nation for this reason, seeking $16bn: equivalent to half of state's yearly income. Among the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars contend that the EU’s delay in using frozen Russian assets as security for its financial support package stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over sovereign states may be obstructing the money Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that these scenarios wouldn’t happen. Years ago, a government leader, promoting the most significant and hazardous of all these agreements, declared: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An expert on this matter accused critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations had to worry about ISDS claims. Warnings that “as corporations grasp the influence they now possess, they will shift their focus from the vulnerable countries to the strong ones” were met with scepticism.

That warning is now a reality. This year, fossil fuel and resource corporations have filed a record number of suits against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to prevent climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP