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What is your reckon our democratic process functions? Maybe similar to this. We elect MPs. They vote on bills. Should a majority is obtained, the bills become law. Statutes is maintained by the courts. That's it. Well, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Arbitration Panels

In the modern era, foreign corporations, and the wealthy individuals who own them, can sue governments for the laws they pass, at offshore tribunals composed of business advocates. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. Access is granted only to businesses based overseas.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

These awards constitute not real financial harm but compensation the arbitrators conclude the company could potentially have made. The state might be compelled to drop the legislation. It becomes discouraged from enacting future policies in that area, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being initiated, as firms learn from each other, and hedge funds fund legal actions for a share of a portion of the settlements. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the decisions made by legislatures is that this stipulation has been written – absent public approval, and often in an atmosphere of total confidentiality – into trade treaties.

A Real-World Instance: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The justice found that plans to open the first new deep coal mine in the UK for a generation, in Cumbria, had been unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have no impact on our carbon budgets. The new government then withdrew the licence the former government had issued. Today, this legal outcome is under threat by an offshore tribunal answering to only the entities filing the suit.

In August, a company whose beneficial owners are based in the offshore financial centre filed a lawsuit versus the UK government. The previous week a tribunal in the US capital was convened to hear it.

The company is suing the UK for the profits it would have generated if the mine had been permitted to go ahead. We have no clear indication how much this might be. Which individual is serving as its counsel in opposition to the UK administration? A sitting MP, and former attorney-general in the outgoing administration, that great patriot the MP. The state passes a law, the high court validates it, then a foreign company challenges it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case to date, but it seems likely that he’ll use the ISDS mechanism to challenge the penalties the UK enacted against him following the war in Ukraine. He has initiated proceedings against a small nation with similar intent, seeking a colossal sum: half that state's yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

Trade specialists argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over sovereign states might be preventing the finance Ukraine urgently requires.

False Assurances and Escalating Threats

We were assured that these scenarios wouldn’t happen. In 2014, a former prime minister, promoting the biggest and most dangerous of all investment pacts, declared: “We’ve signed investment treaty upon trade deal and we have never seen a case in the past.” An adviser on this matter labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms begin to understand the authority they’ve been granted, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That warning has now materialised. This year, energy and extraction companies have filed a historic level of suits against nations rich and poor, challenging – similar to the UK mine – official measures to halt climate breakdown. Corporations have thus far won $114bn through ISDS, of which oil majors have obtained the majority. That represents the combined GDP