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How do you perceive our democratic process functions? It could be along the lines of this. We elect MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Advent of Offshore Courts

Today, foreign corporations, or the billionaires who own them, have the power to sue nation states for the laws they pass, at secret arbitration panels composed of business advocates. The cases take place in secret. Differing from national judiciaries, these panels allow no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, or even businesses headquartered in this country. The door is open solely for entities registered abroad.

When a secret court finds that a legislative action might diminish the corporation’s projected profits, it may order damages of hundreds of millions, even billions.

This compensation represent not actual losses but compensation the arbitrators conclude the company might otherwise have made. The government might be compelled to abandon its policy. It is deterred from introducing similar legislation along the same lines, for fear of facing litigation.

A System Running Rampant

Record numbers of legal actions are being brought, as corporations learn from each other, and hedge funds bankroll lawsuits in return for a share of the awards. The outcome? National sovereignty and democracy are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the rulings made by parliaments is that this clause has been written – absent public approval, and often in an atmosphere of profound opacity – within international trade agreements.

A Concrete Example: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the high court. The justice ruled that schemes to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine would have had no impact on our carbon budgets. The new government later cancelled the permission the previous administration had issued. Currently, this success faces being overturned by an offshore tribunal accountable to only the companies petitioning it.

During August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings versus the UK government. Last week a tribunal in the United States was set up to consider the case.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to commence operations. The public has no clear indication how much this might be. What legal team is serving as its counsel in opposition to the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the high court supports it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the penalties the UK enacted against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: equivalent to half of government’s annual revenue. Among the legal team on his side? Cherie Blair, married to the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over elected governments could be blocking the funds Ukraine critically depends on.

False Assurances and Escalating Threats

We were assured that these events wouldn’t happen. Years ago, a former prime minister, advocating for the most significant and hazardous of all investment pacts, declared: “The UK has signed investment treaty upon trade deal and there has never been a case in the past.” An adviser on this topic labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear such legal actions. Predictions that “when companies begin to understand the influence they now possess, they will turn their attention from the weak nations to the wealthy nations” were greeted by scepticism.

That threat has now materialised. Recently, oil and gas and mining firms have initiated a record number of claims against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – state efforts to stop environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP