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Can you understand our democratic process works? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. Legislation is maintained by the courts. End of story. Yet, that’s how it used to work. Those days are over.

The Advent of Offshore Courts

Today, overseas companies, or the oligarchs who own them, can sue governments for the laws they pass, at secret arbitration panels staffed by business advocates. Such disputes take place in secret. In contrast to domestic courts, these tribunals grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. They are open only to corporations based overseas.

If a tribunal rules that a law or policy could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These sums are based not on real financial harm but money the arbitrators decide the company would perhaps have made. The administration might be compelled to abandon its policy. It will be hesitant to introducing similar legislation in that area, for fear of being sued.

A Mechanism Running Rampant

Historically high figures of disputes are being filed, as companies take cues from each other, and investment funds finance suits in exchange for a share of the settlements. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the choices enacted by elected bodies is that this provision has been written – without public consent, and often in an atmosphere of extreme secrecy – into trade treaties.

A Concrete Example: The UK Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The justice ruled that plans to excavate the first new deep coal mine in the UK for 30 years, in northwest England, had been unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The new government then withdrew the permission the previous administration had granted. Currently, this success is under threat by an foreign court reporting to exclusively the corporations bringing the case.

During August, a firm whose ultimate owners reside in the tax haven lodged a claim against the UK government. Last week a dispute settlement body in the US capital was established to consider the case.

This firm is seeking compensation from the UK for the money it would have generated if the mine had been permitted to proceed. Citizens have no idea how much this could amount to. Who is serving as its counsel against the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The government passes a law, the domestic court validates it, then a international entity challenges it through an undemocratic offshore tribunal, and a elected official works for its behalf.

An Oligarch's Case

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, an oligarch. The public knows scarce of the case to date, but it appears probable that he’ll use the ISDS mechanism to fight the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has started suing a small nation with similar intent, seeking $16bn: half that nation's yearly budget. Among the legal team acting for him in that case? a prominent lawyer, married to the former British prime minister.

Legal experts contend that the EU’s procrastination in utilising seized Russian assets as collateral for its aid for Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the finance Ukraine desperately needs.

False Assurances and Growing Costs

Politicians promised that such things could not occur. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, told us: “We’ve signed trade agreement upon trade deal and we have never seen a case in the past.” A consultant on this issue labelled campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states had to worry about such legal actions. Warnings that “once firms start to realise the power they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with scepticism.

That prediction has now materialised. Recently, fossil fuel and resource corporations have filed a unprecedented number of suits against nations both wealthy and developing, challenging – similar to the UK mine – official measures to stop global warming. Firms have to date won vast sums via ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP