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How do you reckon our democratic process works? Perhaps similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Rise of Offshore Courts

Today, foreign corporations, or the billionaires who own them, are able to litigate against nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. The cases take place in secret. Unlike our courts, these tribunals allow no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. They are open solely for entities based overseas.

When a secret court determines that a legislative action might diminish the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

These awards constitute not tangible damages but money the arbitrators decide the company might otherwise have made. The state could be forced to abandon its policy. It is deterred from introducing similar legislation in that area, due to the risk of being sued.

A Process Growing Exponentially

Unprecedented levels of cases are being initiated, as companies observe each other, and hedge funds fund legal actions in exchange for a share of the takings. The outcome? Democratic sovereignty and democracy are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions enacted by elected bodies is that this clause has been written – without democratic mandate, and often in conditions of profound opacity – inside bilateral investment treaties.

A Real-World Example: The UK Coalmine

Twelve months ago, activists secured a significant win at the high court. The justice found that schemes to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have had zero effect on climate commitments. The new government later cancelled the licence the former government had granted. Now, this success could be compromised by an secret arbitration panel reporting to only the corporations bringing the case.

Last August, a firm whose ultimate owners are located in the offshore financial centre initiated proceedings challenging the UK government. Last week a tribunal in Washington DC was established to adjudicate on it.

The claimant is litigating against the UK for the money it could have earned if the mine had received permission to go ahead. The public has no clear indication how much this could amount to. What legal team is serving as its counsel challenging the UK administration? A sitting MP, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a international entity disputes it through an undemocratic private court, and a member of our parliament acts on its behalf.

The Russian Challenge

On the same day that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know nothing of the case to date, but it is highly possible that he’ll use the tribunal to fight the restrictions the UK enacted against him following the invasion of Ukraine. He has previously filed a claim against another European state for this reason, claiming a colossal sum: an amount representing half government’s yearly income. Included in the counsel on his side? the wife of a former prime minister, married to the previous PM.

Legal experts contend that the EU’s delay in utilising seized Russian assets as collateral for its financial support package stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the money Ukraine critically depends on.

Misleading Claims and Escalating Costs

Politicians promised that these events were not possible. Previously, a senior politician, promoting the largest and riskiest of all these agreements, stated: “Britain has agreed to trade deal after trade deal and there has not been a issue in the past.” A consultant on this matter described critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “once firms begin to understand the power they now possess, they will shift their focus from the vulnerable countries to the developed economies” were met with general mockery.

That threat has now materialised. In the current period, energy and mining firms have lodged a historic level of cases against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP