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How do you reckon 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 are enacted as law. Statutes is upheld by the courts. End of story. Yet, that’s how it operated in the past. Not anymore.

The Advent of Offshore Tribunals

Today, overseas companies, or the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes take place away from public scrutiny. In contrast to domestic courts, these panels grant no opportunity to appeal or legal review. You or I are unable to file a case to them, nor can our government, including companies operating from this country. Access is granted solely for entities registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s projected profits, it can award damages of hundreds of millions, even billions.

These sums are based not on real financial harm but funds the arbitrators decide the company might otherwise have made. The state might be compelled to drop the legislation. It becomes discouraged from introducing similar legislation in that area, worried about being sued.

A Process Spiralling Out of Control

Unprecedented levels of cases are being filed, as corporations observe each other, and investment funds finance suits for a share of a portion of the takings. The outcome? Sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the decisions enacted by elected bodies is that this clause has been written – absent public approval, and typically amid a climate of extreme secrecy – within international trade agreements.

A Real-World Case: The Cumbrian Coalmine

Last year, activists secured a significant win at the high court. The judge ruled that proposals to dig the first new deep coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have no consequence on climate commitments. The new government later cancelled the consent the Tories had issued. Now, this legal outcome could be compromised by an secret arbitration panel accountable to no one but the companies filing the suit.

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

The claimant is suing the UK for the money it could have earned if the mine had been allowed to commence operations. We have little idea how much this might be. What legal team is serving as its counsel against the UK administration? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the national judiciary supports it, then a international entity contests it through an secretive private court, and a elected official works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case to date, but it seems likely that he’ll use the arbitration process to fight the sanctions the UK levied against him after the invasion of Ukraine. He has started suing Luxembourg on these grounds, claiming a colossal sum: equivalent to half of nation's yearly income. Part of the counsel on his side? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists argue that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation 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.

Empty Promises and Mounting Costs

We were assured that such things wouldn’t happen. Years ago, a government leader, promoting the largest and riskiest of all such treaties, declared: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” An adviser on this matter described critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear ISDS claims. Warnings that “as corporations start to realise the power they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were greeted by scepticism.

That prediction is now a reality. Recently, fossil fuel and extraction companies have lodged a record number of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP