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What is your reckon our democratic process works? It could be similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. That's it. However, that was how it used to work. Not anymore.

The Advent of Offshore Courts

In the modern era, international firms, along with the wealthy individuals behind them, have the power to sue governments for the laws they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these panels provide no right of appeal or legal review. You or I cannot take a case to them, and neither can our government, or even enterprises operating from this country. Access is granted solely for corporations operating from foreign soil.

If a tribunal finds that a law or policy might diminish the corporation’s expected profits, it can award damages of hundreds of millions, potentially billions.

These sums are based not on actual losses but compensation the tribunal officials conclude the company might otherwise have made. The government might be compelled to rescind the measure. It is hesitant to enacting future policies of a similar nature, due to the risk of facing litigation.

A Process Growing Exponentially

Historically high figures of legal actions are being brought, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a share of the awards. The outcome? Democratic sovereignty and popular rule are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the decisions taken by elected bodies is that this stipulation has been incorporated – without public consent, and frequently under an atmosphere of extreme secrecy – into international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The judge ruled that plans to excavate the first deep coalmine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government subsequently revoked the permission the Tories had issued. Currently, this success could be compromised by an foreign court reporting to only the corporations petitioning it.

Last August, a company whose ultimate owners reside in the offshore financial centre initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was established to hear it.

The claimant is suing the UK for the profits it could have earned if the mine had received permission to go ahead. We have no idea how much this could amount to. What legal team is serving as its counsel challenging the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the high court upholds it, then a overseas corporation contests it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

On the same day that the court on the coal mine dispute was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case so far, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK enacted against him following the war in Ukraine. He has previously filed a claim against another European state with similar intent, seeking a colossal sum: equivalent to half of state's annual revenue. Included in the lawyers representing him there? a prominent lawyer, wife of the ex-UK leader.

Legal experts contend that the EU’s procrastination in using frozen oligarchs' funds as security for its financial support package stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the finance Ukraine desperately needs.

False Assurances and Escalating Threats

Politicians promised that these events were not possible. Years ago, a former prime minister, promoting the most significant and hazardous of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has not been a case in the past.” An expert on this matter described activists of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “when companies start to realise the influence they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were met with widespread derision.

That prediction has come to pass. In the current period, oil and gas and mining firms have lodged a record number of claims against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP