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What is your perceive our democratic process operates? Perhaps similar to this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Statutes is maintained by the courts. End of story. Yet, that was how it used to work. No longer.

The Rise of Offshore Arbitration Panels

In the modern era, international firms, along with the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at private courts made up of corporate lawyers. The cases are held away from public scrutiny. Unlike our courts, these panels grant no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, or even enterprises based in this country. Access is granted only to entities operating from foreign soil.

When a secret court determines that a government measure could harm the corporation’s expected profits, it may order compensation of vast sums, running into billions.

These awards represent not tangible damages but compensation the panel members conclude the company might otherwise have made. The government may have to abandon its policy. It becomes deterred from enacting future policies of a similar nature, worried about being sued.

A Process Growing Exponentially

Record numbers of legal actions are being filed, as firms learn from each other, and investment funds fund legal actions in return for a share of the settlements. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the rulings taken by legislatures is that this provision has been written – without democratic mandate, and typically amid a climate of total confidentiality – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The judge ruled that schemes to excavate the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no impact on climate commitments. The incoming administration later cancelled the licence the former government had approved. Currently, this victory is under threat by an foreign court reporting to only the entities bringing the case.

Last August, a company whose beneficial owners are located in the offshore financial centre filed a lawsuit versus the UK government. The previous week a tribunal in the United States was set up to hear it.

This firm is litigating against the UK for the money it would have generated if the mine had been allowed to go ahead. We have no idea how much this could amount to. Which individual is representing it challenging the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The administration passes a law, the domestic court upholds it, then a international entity contests it through an secretive private court, and a elected official acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case to date, but it appears probable that he’ll use the ISDS mechanism to contest the penalties the UK levied against him after the invasion of Ukraine. He has previously filed a claim against Luxembourg with similar intent, seeking sixteen billion dollars: half that government’s yearly income. Included in the counsel representing him there? Cherie Blair, wife of the former British prime minister.

International law scholars argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its loan to Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over sovereign states might be preventing the money Ukraine urgently requires.

False Assurances and Escalating Costs

The public was told that these scenarios wouldn’t happen. Previously, a senior politician, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and we have never seen a case in the past.” An adviser on this matter accused activists of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations needed to fear such legal actions. Cautionary notes that “when companies grasp the power they’ve been granted, they will shift their focus from the weak nations to the developed economies” were greeted by widespread derision.

That warning is now a reality. This year, fossil fuel and resource corporations have filed a record number of cases against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – official measures to halt climate breakdown. Firms have so far won $114bn by using ISDS, of which energy giants have been awarded the majority. That represents the combined GDP