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How do you understand our democratic process works? It could be something like this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills become law. Statutes are enforced by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Advent of Offshore Tribunals

Nowadays, foreign corporations, along with the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings take place in secret. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. You or I cannot take a case to them, and neither can our government, or even companies operating from this country. The door is open exclusively to entities based overseas.

If a tribunal rules that a legislative action could harm the corporation’s projected profits, it may order damages of hundreds of millions, even billions.

These awards are based not on actual losses but money the tribunal officials decide the company would perhaps have made. The government might be compelled to drop the legislation. It will be deterred from passing future laws of a similar nature, due to the risk of facing litigation.

A System Spiralling Out of Control

Record numbers of cases are being brought, as firms take cues from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the rulings enacted by parliaments is that this stipulation has been inserted – without public consent, and typically amid an atmosphere of profound opacity – within trade treaties.

A Specific Instance: The Cumbrian Coal Mine

Last year, activists won a great victory at the senior court. The justice ruled that plans to open the first deep coalmine in the UK for three decades, in Cumbria, had been wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have had zero effect on climate commitments. The Labour government later cancelled the consent the Tories had granted. Currently, this success faces being overturned by an foreign court reporting to exclusively the corporations petitioning it.

During August, a firm whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. Last week a tribunal in the US capital was convened to adjudicate on it.

The claimant is suing the UK for the revenue it might have made if the mine had been allowed to proceed. Citizens have no idea how much this might be. Who is acting on its behalf challenging the British government? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The administration enacts a policy, the high court supports it, then a international entity challenges it through an secretive offshore tribunal, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the tribunal on the coalmine case was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case to date, but it appears probable that he will utilise the ISDS mechanism to challenge the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already filed a claim against another European state for this reason, demanding a colossal sum: half that government’s annual revenue. Part of the counsel on his side? a prominent lawyer, married to the previous PM.

International law scholars argue that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments may be obstructing the money Ukraine desperately needs.

False Assurances and Mounting Costs

The public was told that such things wouldn’t happen. Years ago, a former prime minister, championing the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement upon trade deal and there has never been a issue in the past.” A consultant on this matter labelled campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies start to realise the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by widespread derision.

That warning has now materialised. Recently, energy and extraction companies have filed a unprecedented number of suits against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – government attempts to prevent climate breakdown. Companies have so far won vast sums via ISDS, of which energy giants have secured the majority. That equates to the combined GDP