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How do you reckon our democratic process operates? Perhaps similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. However, that used to be how it used to work. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, and the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at private courts composed of business advocates. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies allow no avenue for appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even companies operating from this country. The door is open only to corporations operating from foreign soil.

If a tribunal determines that a government measure might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, even billions.

This compensation are based not on real financial harm but compensation the tribunal officials determine the company might otherwise have made. The administration might be compelled to drop the legislation. It becomes discouraged from introducing similar legislation of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Historically high figures of disputes are being brought, as companies learn from each other, and hedge funds finance suits in exchange for a cut of the awards. The consequence? Sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the choices taken by parliaments is that this clause has been written – without democratic mandate, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Specific Case: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer found that plans to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the questionable argument that the mine could have no impact on our carbon budgets. The incoming administration then withdrew the permission the Tories had issued. Now, this legal outcome faces being overturned by an secret arbitration panel accountable to only the entities bringing the case.

Last August, a firm whose beneficial owners are located in the Cayman Islands initiated proceedings versus the UK government. The previous week a tribunal in the US capital was established to adjudicate on it.

The company is litigating against the UK for the money it would have generated if the mine had been permitted to proceed. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel in opposition to the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The government makes a decision, the domestic court validates it, then a foreign company disputes it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Case

On the same day that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case at present, but it is highly possible that he may employ the arbitration process to contest the penalties the UK levied against him following the Russian aggression. He has filed a claim against Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of state's yearly budget. Included in the legal team representing him there? the wife of a former prime minister, married to the previous PM.

International law scholars contend that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments could be blocking the money Ukraine desperately needs.

False Assurances and Mounting Costs

Politicians promised that these events could not occur. Previously, a senior politician, advocating for the biggest and most dangerous of all these agreements, declared: “Britain has agreed to trade agreement upon trade deal and there has never been a issue in the past.” An expert on this matter accused campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries should be concerned by these lawsuits. Predictions that “as corporations grasp the authority bestowed upon them, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That prediction has now materialised. This year, oil and gas and mining firms have lodged a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent global warming. Companies have to date won vast sums via ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP