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How do you understand our democratic process works? Perhaps similar to this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills become law. Statutes is upheld by the courts. That's it. Yet, that was how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

In the modern era, international firms, or the billionaires who own them, have the power to sue elected administrations for the regulations they pass, at offshore tribunals made up of corporate lawyers. The cases take place behind closed doors. In contrast to domestic courts, these tribunals allow no avenue for appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even companies headquartered in this country. The door is open solely for businesses registered abroad.

Should an arbitration panel determines that a government measure might diminish the corporation’s expected profits, it can award compensation of hundreds of millions, running into billions.

These sums constitute not real financial harm but compensation the arbitrators conclude the company could potentially have made. The government may have to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A Process Running Rampant

Unprecedented levels of legal actions are being initiated, as companies take cues from each other, and investment funds finance suits in exchange for a share of the settlements. The consequence? Sovereignty and democratic governance are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the choices taken by legislatures is that this provision has been written – without democratic mandate, and often in conditions of total confidentiality – inside bilateral investment treaties.

A Specific Case: The Whitehaven Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The judge found that schemes to open the first deep coalmine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have had no impact on climate commitments. The new government later cancelled the licence the Tories had granted. Now, this victory faces being overturned by an offshore tribunal reporting to no one but the entities petitioning it.

In August, a corporate entity whose ultimate owners are located in the Cayman Islands lodged a claim versus the UK government. Recently a arbitration panel in the United States was established to adjudicate on it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to commence operations. Citizens have little idea how much this could amount to. What legal team is representing it in opposition to the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a foreign company disputes it through an unaccountable private court, and a member of our parliament represents its behalf.

The Russian Case

On the same day that the tribunal on the coalmine case was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the penalties the UK levied against him subsequent to the Russian aggression. He has already filed a claim against a small nation with similar intent, demanding a colossal sum: equivalent to half of government’s annual revenue. Part of the lawyers acting for him in that case? Cherie Blair, married to the previous PM.

Legal experts argue that the EU’s hesitation in utilising seized state funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the finance Ukraine urgently requires.

Misleading Claims and Growing Threats

Politicians promised that such things could not occur. Previously, a government leader, advocating for the largest and riskiest of all such treaties, declared: “The UK has signed trade deal upon trade deal and we have never seen a problem in the past.” A consultant on this issue labelled campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “once firms begin to understand the power they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were met with general mockery.

That threat has come to pass. This year, oil and gas and extraction companies have filed a unprecedented number of suits against nations rich and poor, challenging – similar to the UK mine – state efforts to prevent environmental catastrophe. Firms have so far won vast sums by using ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP