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How do you reckon our democratic process functions? Perhaps something like this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that’s how it once functioned. Not anymore.

The Emergence of Offshore Courts

Nowadays, international firms, or the billionaires behind them, are able to litigate against nation states for the policies they pass, at private courts composed of corporate lawyers. Such disputes are held away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to 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 based overseas.

When a secret court finds that a law or policy might diminish the corporation’s projected profits, it can award financial penalties of vast sums, even billions.

This compensation are based not on tangible damages but money the arbitrators determine the company could potentially have made. The state may have to drop the legislation. It is deterred from passing future laws along the same lines, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as firms take cues from each other, and investment funds fund legal actions for a share of a share of the awards. The result? National sovereignty and popular rule are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the rulings made by legislatures is that this clause has been written – without democratic mandate, and frequently under conditions of extreme secrecy – into bilateral investment treaties.

A Specific Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The justice found that schemes to excavate the first major coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine would have had zero effect on national carbon targets. The new government then withdrew the consent the former government had granted. Now, this legal outcome is under threat by an foreign court accountable to only the corporations bringing the case.

Last August, a company whose final controllers are based in the tax haven lodged a claim challenging the UK government. Last week a tribunal in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Who is acting on its behalf against the British government? An elected representative, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The government passes a law, the high court supports it, then a international entity contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

Simultaneously that the court on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case so far, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him following the war in Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, claiming a colossal sum: an amount representing half nation's annual revenue. Among the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts believe that the EU’s procrastination in utilising seized oligarchs' funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over sovereign states could be blocking the funds Ukraine urgently requires.

Misleading Claims and Growing Risks

We were assured that these scenarios wouldn’t happen. Years ago, a government leader, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this topic labelled critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear these lawsuits. Warnings that “when companies grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That prediction has come to pass. Recently, energy and mining firms have initiated a record number of cases against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Corporations have so far won $114bn by using ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP