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Can you understand our democratic process works? It could be something like this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills become law. Statutes is upheld by the courts. That's it. Well, that was how it used to work. Those days are over.

The Emergence of Offshore Courts

Today, international firms, along with the wealthy individuals behind them, can sue governments for the regulations they pass, at offshore tribunals made up of corporate lawyers. The cases are held behind closed doors. Unlike our courts, these tribunals provide no right of appeal or judicial review. You or I are unable to file a case to them, and neither can our government, including enterprises headquartered in this country. Access is granted exclusively to corporations operating from foreign soil.

If a tribunal finds that a government measure may compromise the corporation’s anticipated profits, it can award compensation of vast sums, running into billions.

These awards are based not on tangible damages but compensation the tribunal officials determine the company would perhaps have made. The administration could be forced to drop the legislation. It is hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A Process Growing Exponentially

Unprecedented levels of legal actions are being initiated, as companies learn from each other, and investment funds bankroll lawsuits for a share of a portion of the takings. The consequence? National sovereignty and popular rule are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the choices made by elected bodies is that this clause has been inserted – without democratic mandate, and frequently under conditions of profound opacity – into international trade agreements.

A Concrete Example: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the high court. The judge found that schemes to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration later cancelled the consent the former government had granted. Currently, this success is under threat by an offshore tribunal answering to only the companies bringing the case.

In August, a firm whose final controllers are based in the tax haven lodged a claim versus the UK government. Recently a tribunal 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 go ahead. The public has no clear indication how much this could amount to. Who is serving as its counsel challenging the state? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The state makes a decision, the domestic court validates it, then a foreign company contests it through an undemocratic private court, and a elected official works for its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he will utilise the arbitration process to fight the restrictions the UK enacted against him after the war in Ukraine. He has already initiated proceedings against another European state for this reason, seeking a colossal sum: half that nation's annual revenue. Included in the counsel on his side? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over elected governments might be preventing the money Ukraine desperately needs.

Misleading Claims and Mounting Risks

Politicians promised that these scenarios wouldn’t happen. Previously, a senior politician, advocating for the most significant and hazardous of all these agreements, told us: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” A consultant on this issue labelled activists of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “once firms start to realise the power bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were met with general mockery.

That warning has now materialised. This year, oil and gas and mining firms have filed a historic level of suits against nations across the economic spectrum, challenging – similar to the UK mine – state efforts to stop climate breakdown. Corporations have thus far won vast sums by using ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP