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Can you perceive our democratic process operates? Perhaps something like this. We elect MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. No longer.

The Emergence of Offshore Courts

In the modern era, foreign corporations, along with the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at private courts staffed by corporate lawyers. These proceedings take place in secret. Unlike our courts, these panels grant no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies operating from this country. Access is granted only to corporations based overseas.

If a tribunal determines that a government measure may compromise the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These sums constitute not real financial harm but funds the tribunal officials conclude the company might otherwise have made. The administration might be compelled to rescind the measure. It is deterred from passing future laws in that area, due to the risk of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being filed, as companies learn from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The outcome? Sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the decisions made by legislatures is that this clause has been inserted – without democratic mandate, and typically amid conditions of extreme secrecy – inside bilateral investment treaties.

A Specific Case: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The judge determined that schemes to open the first major coal mine in the UK for 30 years, in northwest England, had been unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the permission the former government had issued. Today, this legal outcome could be compromised by an foreign court answering to no one but the companies petitioning it.

In August, a company whose ultimate owners reside in the tax haven lodged a claim versus the UK government. Recently a dispute settlement body in the US capital was established to hear it.

This firm is suing the UK for the revenue it could have earned if the mine had received permission to go ahead. The public has no clear indication how much this sum represents. Who is representing it against the state? An elected representative, and previous senior legal advisor in the previous government, that great patriot the MP. The government passes a law, the national judiciary validates it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

The Russian Challenge

Simultaneously that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case to date, but it appears probable that he’ll use the tribunal to challenge the sanctions the UK imposed on him after the invasion of Ukraine. He has started suing another European state on these grounds, seeking sixteen billion dollars: half that nation's annual revenue. Included in the legal team on his side? Cherie Blair, wife of the former British prime minister.

Trade specialists believe that the EU’s hesitation in utilising seized state funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over sovereign states could be blocking the money Ukraine critically depends on.

Misleading Claims and Escalating Costs

The public was told that such things could not occur. Previously, a government leader, advocating for the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” An adviser on this topic accused activists of “alarmism … the truth is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “when companies start to realise the influence they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat has come to pass. In the current period, energy and resource corporations have filed a unprecedented number of cases against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – government attempts to stop global warming. Firms have to date won $114bn by using ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP