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What is your understand our democratic process operates? It could be along the lines of this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Well, that used to be how it used to work. Those days are over.

The Rise of Offshore Tribunals

Today, international firms, and the oligarchs that control them, have the power to sue nation states for the policies they pass, at offshore tribunals composed of business advocates. Such disputes are held away from public scrutiny. Differing from national judiciaries, these panels grant no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even companies operating from this country. They are open only to businesses registered abroad.

If a tribunal determines that a legislative action could harm the corporation’s projected profits, it may order financial penalties of hundreds of millions of pounds, even billions.

This compensation are based not on tangible damages but money the tribunal officials determine the company would perhaps have made. The state might be compelled to drop the legislation. It will be discouraged from introducing similar legislation of a similar nature, for fear of facing litigation.

A Process Growing Exponentially

Unprecedented levels of legal actions are being filed, as companies observe each other, and hedge funds finance suits for a share of a share of the awards. The consequence? Democratic sovereignty and democratic governance are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the decisions made by legislatures is that this clause has been incorporated – absent public approval, and typically amid conditions of profound opacity – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the senior court. The judge found that plans to dig the first major coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine could have no impact on our carbon budgets. The new government later cancelled the permission the former government had approved. Today, this victory is under threat by an foreign court accountable to only the entities petitioning it.

Last August, a firm whose beneficial owners are located in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a arbitration panel in the US capital was established to hear it.

This firm is suing the UK for the revenue it would have generated if the mine had been permitted to proceed. The public has little idea how much this could amount to. Which individual is representing it challenging the British government? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the high court validates it, then a international entity disputes it through an undemocratic private court, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the coalmine case was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows scarce of the case at present, but it seems likely that he may employ the tribunal to contest the penalties the UK levied against him after the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, seeking sixteen billion dollars: an amount representing half nation's yearly income. Among the counsel on his side? a prominent lawyer, married to the previous PM.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these events wouldn’t happen. Years ago, a government leader, championing the biggest and most dangerous of all these agreements, stated: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this issue accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies grasp the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were met with scepticism.

That prediction has now materialised. In the current period, energy and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – like the example of the Whitehaven project – state efforts to stop global warming. Corporations have thus far won vast sums through ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP