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Can you reckon our democratic process functions? Maybe something like this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. The law are enforced by the courts. Simple as that. Yet, that was how it once functioned. No longer.

The Rise of Offshore Arbitration Panels

Today, international firms, or the wealthy individuals behind them, can sue elected administrations for the regulations they pass, at private courts made up of commercial attorneys. These proceedings are held in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. They are open only to entities operating from foreign soil.

If a tribunal finds that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, running into billions.

These sums constitute not real financial harm but funds the panel members determine the company could potentially have made. The state could be forced to abandon its policy. It is deterred from passing future laws of a similar nature, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of legal actions are being filed, as firms learn from each other, and investment funds fund legal actions in return for a cut of the settlements. The result? Sovereignty and popular rule are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the choices made by elected bodies is that this provision has been incorporated – absent public approval, and frequently under conditions of extreme secrecy – within trade treaties.

A Real-World Instance: The UK 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 found to be illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine would have no impact on our carbon budgets. The new government subsequently revoked the consent the Tories had approved. Today, this victory is under threat by an offshore tribunal answering to exclusively the corporations petitioning it.

During August, a company whose final controllers are based in the tax haven filed a lawsuit against the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

The company is suing the UK for the profits it might have made if the mine had received permission to go ahead. The public has no idea how much this sum represents. What legal team is serving as its counsel in opposition to the British government? A sitting MP, and former attorney-general in the Conservative government, the noted patriot the MP. The government enacts a policy, the high court supports it, then a overseas corporation challenges it through an secretive private court, and a elected official acts on its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the coal mine dispute was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case so far, but it is highly possible that he’ll use the tribunal to contest the penalties the UK levied against him following the war in Ukraine. He has previously filed a claim against another European state on these grounds, demanding a colossal sum: an amount representing half nation's yearly budget. Included in the legal team on his side? the wife of a former prime minister, wife of the previous PM.

International law scholars believe that the EU’s delay in leveraging immobilised state funds as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Threats

We were assured that such things were not possible. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, told us: “We’ve signed trade deal upon trade deal and there has never been a case in the past.” A consultant on this topic accused campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations should be concerned by ISDS claims. Warnings that “once firms grasp the authority they’ve been granted, they will turn their attention from the weak nations to the developed economies” were dismissed with scepticism.

That warning is now a reality. In the current period, oil and gas and resource corporations have filed a unprecedented number of cases against nations both wealthy and developing, challenging – as in the case of the UK mine – government attempts to stop environmental catastrophe. Corporations have so far won $114bn by using ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP