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How do you reckon our democratic process functions? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. The law is maintained by the courts. That's it. Yet, that was how it operated in the past. Those days are over.

The Emergence of Offshore Courts

Today, foreign corporations, along with the wealthy individuals that control them, can sue elected administrations for the policies they pass, at secret arbitration panels composed of corporate lawyers. The cases are held in secret. Unlike our courts, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, just as our government, including companies based in this country. The door is open exclusively to businesses based overseas.

When a secret court determines that a government measure may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These sums constitute not actual losses but compensation the arbitrators decide the company might otherwise have made. The administration may have to drop the legislation. It will be discouraged from enacting future policies along the same lines, due to the risk of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies observe each other, and private equity fund legal actions in return for a portion of the awards. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the rulings enacted by legislatures is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The UK Coalmine

Last year, activists secured a significant win at the High Court. The presiding officer determined that proposals to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have had no impact on our carbon budgets. The Labour government then withdrew the permission the former government had issued. Now, this legal outcome is under threat by an foreign court reporting to only the companies petitioning it.

Last August, a company whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. Last week a tribunal in the United States was established to adjudicate on it.

The claimant is suing the UK for the money it would have generated if the mine had received permission to go ahead. Citizens have no idea how much this sum represents. What legal team is serving as its counsel challenging the UK administration? An elected representative, and former attorney-general in the outgoing administration, the noted patriot the MP. The administration makes a decision, the national judiciary supports it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

A Sanctions Case

On the same day that the court on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it seems likely that he will utilise the arbitration process to challenge the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has started suing a small nation with similar intent, demanding sixteen billion dollars: half that state's yearly budget. Among the legal team representing him there? Cherie Blair, married to the previous PM.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over democratic administrations might be preventing the money Ukraine critically depends on.

Misleading Claims and Mounting Costs

Politicians promised that these events were not possible. Previously, a government leader, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and there has not been a problem in the past.” An adviser on this issue described activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “as corporations begin to understand the authority they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That threat has come to pass. Recently, fossil fuel and resource corporations have lodged a record number of suits against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – official measures to stop global warming. Companies have so far won $114bn by using ISDS, of which energy giants have secured the majority. That represents the combined GDP