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Can you understand our democratic process functions? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills pass into law. Legislation are enforced by the courts. Simple as that. However, that used to be how it used to work. No longer.

The Advent of Offshore Courts

In the modern era, international firms, and the billionaires that control them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals composed of business advocates. These proceedings are held behind closed doors. In contrast to domestic courts, these panels grant no right of appeal or legal review. Ordinary citizens are unable to file a case to them, just as our government, including enterprises operating from this country. The door is open exclusively to entities registered abroad.

Should an arbitration panel finds that a law or policy may compromise the corporation’s projected profits, it may order financial penalties of hundreds of millions, even billions.

This compensation are based not on tangible damages but money the arbitrators conclude the company could potentially have made. The government may have to abandon its policy. It will be discouraged from enacting future policies along the same lines, worried about being sued.

A Mechanism Running Rampant

Unprecedented levels of disputes are being initiated, as firms learn from each other, and investment funds finance suits in exchange for a cut of the settlements. The consequence? Sovereignty and democracy are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the decisions enacted by parliaments is that this provision has been written – without public consent, and frequently under a climate of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

Last year, environmental campaigners won a great victory at the senior court. The presiding officer found that schemes to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the consent the Tories had granted. Currently, this legal outcome faces being overturned by an secret arbitration panel reporting to only the companies filing the suit.

In August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in the United States was convened to consider the case.

The claimant is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has little idea how much this might be. Who is serving as its counsel against the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The administration passes a law, the national judiciary upholds it, then a foreign company contests it through an secretive private court, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of state's annual revenue. Among the lawyers on his side? Cherie Blair, married to the previous PM.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as security for its loan to Ukraine stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

Politicians promised that such things wouldn’t happen. Previously, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this issue labelled campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the influence they’ve been granted, they will redirect their efforts from the weak nations to the strong ones” were dismissed with general mockery.

That threat has come to pass. In the current period, energy and extraction companies have initiated a record number of cases against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have so far won $114bn through ISDS, of which oil majors have obtained the majority. That represents the combined GDP