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How do you perceive our democratic process works? It could be along the lines of this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills become law. Legislation are enforced by the courts. That's it. However, that used to be how it once functioned. Those days are over.

The Rise of Offshore Courts

Nowadays, international firms, and the billionaires who own them, can sue elected administrations for the laws they pass, at secret arbitration panels made up of commercial attorneys. These proceedings take place behind closed doors. Unlike our courts, these bodies provide no right of appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies based in this country. They are open exclusively to corporations based overseas.

If a tribunal determines that a government measure may compromise the corporation’s expected profits, it can award compensation of vast sums, potentially billions.

This compensation are based not on actual losses but compensation the arbitrators conclude the company could potentially have made. The government could be forced to rescind the measure. It becomes deterred from introducing similar legislation along the same lines, for fear of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being filed, as firms take cues from each other, and hedge funds finance suits in return for a cut of the takings. The result? Democratic sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can override a country's own laws and the rulings enacted by elected bodies is that this stipulation has been incorporated – without public consent, and frequently under a climate of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

Last year, activists won a great victory at the senior court. The judge determined that proposals to open the first major coal mine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine would have had no impact on national carbon targets. The new government subsequently revoked the licence the previous administration had approved. Now, this success could be compromised by an foreign court reporting to no one but the companies bringing the case.

During August, a corporate entity whose beneficial owners are based in the tax haven lodged a claim challenging the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to proceed. We have little idea how much this might be. What legal team is representing it challenging the state? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the high court validates it, then a overseas corporation contests it through an unaccountable private court, and a member of our parliament acts on its behalf.

An Oligarch's Case

Simultaneously that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he may employ the arbitration process to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has already initiated proceedings against Luxembourg on these grounds, claiming a colossal sum: an amount representing half government’s yearly income. Part of the counsel representing him there? Cherie Blair, wife of the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized state funds as security for its financial support package arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over sovereign states may be obstructing the money Ukraine critically depends on.

False Assurances and Escalating Costs

The public was told that these scenarios could not occur. Years ago, a senior politician, championing the most significant and hazardous of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” A consultant on this issue accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies begin to understand the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with general mockery.

That threat is now a reality. This year, oil and gas and mining firms have filed a record number of claims against nations rich and poor, opposing – like the example of the UK mine – official measures to halt environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP