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How do you perceive our democratic process works? It could be something like this. We elect MPs. They legislate on bills. When a majority is secured, the bills become law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Rise of Offshore Courts

Nowadays, overseas companies, and the oligarchs behind them, can sue nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. Such disputes are held in secret. In contrast to domestic courts, these bodies allow no right of appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even enterprises operating from this country. Access is granted only to businesses registered abroad.

Should an arbitration panel finds that a government measure might diminish the corporation’s projected profits, it may order financial penalties of hundreds of millions, even billions.

These awards constitute not tangible damages but funds the panel members determine the company could potentially have made. The state might be compelled to drop the legislation. It becomes hesitant to enacting future policies along the same lines, for fear of facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as companies take cues from each other, and private equity bankroll lawsuits in return for a portion of the takings. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the decisions enacted by parliaments is that this clause has been written – absent public approval, and typically amid conditions of extreme secrecy – into trade treaties.

A Specific Case: The UK Coalmine

Twelve months ago, activists secured a significant win at the senior court. The presiding officer ruled that proposals to excavate the first major coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on national carbon targets. The Labour government subsequently revoked the permission the Tories had granted. Currently, this legal outcome faces being overturned by an foreign court reporting to no one but the corporations filing the suit.

Last August, a company whose final controllers are located in the Cayman Islands lodged a claim challenging the UK government. The previous week a arbitration panel in Washington DC was set up to consider the case.

The company is litigating against the UK for the revenue it could have earned if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is serving as its counsel in opposition to the state? A member of parliament, and former attorney-general in the outgoing administration, that great patriot the MP. The administration passes a law, the domestic court upholds it, then a international entity challenges it through an secretive private court, and a elected official works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case at present, but it is highly possible that he may employ the tribunal to contest the restrictions the UK enacted against him after the invasion of Ukraine. He has already filed a claim against another European state for this reason, seeking sixteen billion dollars: equivalent to half of nation's yearly income. Part of the counsel representing him there? Cherie Blair, married to the previous PM.

Trade specialists argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that these events wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all such treaties, told us: “We’ve signed trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this topic accused activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms begin to understand the power they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat has come to pass. In the current period, fossil fuel and resource corporations have lodged a record number of cases against nations rich and poor, challenging – similar to the UK mine – government attempts to prevent climate breakdown. Firms have to date won vast sums via ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP