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Can you reckon our democratic process functions? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Rise of Offshore Tribunals

Nowadays, international firms, along with the oligarchs that control them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels composed of business advocates. The cases are held away from public scrutiny. In contrast to domestic courts, these panels grant no right of appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, including businesses operating from this country. Access is granted only to corporations based overseas.

When a secret court determines that a law or policy could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation represent not actual losses but money the panel members conclude the company would perhaps have made. The government might be compelled to drop the legislation. It will be deterred from enacting future policies in that area, due to the risk of facing litigation.

A Process Growing Exponentially

Unprecedented levels of disputes are being initiated, as companies learn from each other, and investment funds bankroll lawsuits in return for a share of the takings. The outcome? Democratic sovereignty and democracy are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the rulings made by elected bodies is that this clause has been written – absent public approval, and often in an atmosphere of profound opacity – into international trade agreements.

A Specific Example: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the senior court. The presiding officer determined that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The incoming administration then withdrew the consent the Tories had approved. Currently, this victory is under threat by an foreign court accountable to no one but the entities bringing the case.

In August, a company whose beneficial owners are based in the tax haven filed a lawsuit versus the UK government. Last week a tribunal in the United States was established to hear it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. We have little idea how much this could amount to. Who is serving as its counsel in opposition to the British government? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The state passes a law, the high court validates it, then a international entity disputes it through an secretive private court, and a sitting MP acts on its behalf.

The Russian Case

On the same day that the tribunal on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the sanctions the UK enacted against him after the invasion of Ukraine. He has previously started suing a small nation with similar intent, claiming a colossal sum: equivalent to half of government’s yearly budget. Among the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars contend that the EU’s delay in using frozen Russian assets as security for its financial support package stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments might be preventing the money Ukraine critically depends on.

Empty Promises and Escalating Costs

The public was told that such things were not possible. In 2014, a former prime minister, championing the most significant and hazardous of all such treaties, told us: “The UK has signed investment treaty after trade deal and there has not been a issue in the past.” An adviser on this topic labelled activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries needed to fear such legal actions. Predictions that “as corporations start to realise the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were met with general mockery.

That warning has come to pass. In the current period, fossil fuel and extraction companies have filed a historic level of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Firms have to date won $114bn by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP