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Can you understand our democratic process functions? It could be something like this. The public votes for MPs. They vote on bills. If a majority is secured, the bills pass into law. The law are enforced by the courts. That's it. Well, that’s how it once functioned. Not anymore.

The Rise of Offshore Courts

Today, overseas companies, and the wealthy individuals who own them, can sue governments for the regulations they pass, at private courts made up of corporate lawyers. These proceedings are held in secret. Differing from national judiciaries, these panels grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even businesses headquartered in this country. The door is open only to businesses operating from foreign soil.

When a secret court rules that a government measure could harm the corporation’s anticipated profits, it has the power to grant damages of vast sums, even billions.

This compensation represent not real financial harm but compensation the arbitrators decide the company would perhaps have made. The government could be forced to drop the legislation. It will be discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being brought, as firms observe each other, and investment funds finance suits in return for a share of the awards. The outcome? Democratic sovereignty and popular rule are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the decisions enacted by parliaments is that this clause has been inserted – absent public approval, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Whitehaven Coal Mine

Last year, activists achieved a major legal triumph at the senior court. The presiding officer ruled that schemes to dig the first major coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the permission the former government had granted. Today, this legal outcome is under threat by an secret arbitration panel accountable to no one but the companies bringing the case.

Last August, a firm whose final controllers are located in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in Washington DC was convened to adjudicate on it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had received permission to go ahead. The public has no idea how much this could amount to. Which individual is representing it challenging the UK administration? A sitting MP, and ex-law officer in the outgoing administration, that great patriot the MP. The government passes a law, the national judiciary upholds it, then a international entity contests it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case so far, but it is highly possible that he’ll use the tribunal to challenge the penalties the UK enacted against him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg for this reason, claiming a colossal sum: an amount representing half government’s yearly income. Included in the legal team on his side? Cherie Blair, married to the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Costs

We were assured that such things were not possible. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” An expert on this matter labelled activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states had to worry about ISDS claims. Warnings that “as corporations grasp the authority they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with widespread derision.

That warning has now materialised. This year, fossil fuel and extraction companies have lodged a historic level of suits against nations across the economic spectrum, opposing – like the example of the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have so far won vast sums by using ISDS, of which oil majors have obtained the majority. That equates to the combined GDP