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Can you understand our democratic process functions? Perhaps similar to this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. Legislation is maintained by the courts. End of story. However, that was how it operated in the past. Those days are over.

The Advent of Offshore Arbitration Panels

In the modern era, overseas companies, and the oligarchs behind them, have the power to sue nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these tribunals grant no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies headquartered in this country. Access is granted exclusively to businesses based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, running into billions.

This compensation constitute not tangible damages but compensation the arbitrators decide the company would perhaps have made. The state might be compelled to rescind the measure. It will be deterred from passing future laws of a similar nature, due to the risk of facing litigation.

A Process Running Rampant

Unprecedented levels of disputes are being initiated, as corporations observe each other, and private equity fund legal actions in exchange for a portion of the takings. The consequence? Democratic sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the rulings made by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid a climate of profound opacity – within trade treaties.

A Specific Case: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the high court. The presiding officer found that proposals to dig the first deep coalmine in the UK for 30 years, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have no consequence on national carbon targets. The new government later cancelled the permission the Tories had issued. Now, this legal outcome faces being overturned by an offshore tribunal answering to exclusively the corporations bringing the case.

In August, a corporate entity whose ultimate owners are located in the tax haven filed a lawsuit challenging the UK government. Recently a tribunal in the US capital was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it might have made if the mine had been permitted to commence operations. We have no idea how much this could amount to. What legal team is representing it in opposition to the state? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The state enacts a policy, the domestic court supports it, then a international entity disputes it through an unaccountable private court, and a member of our parliament represents its behalf.

The Russian Lawsuit

On the same day that the court on the coalmine case was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case at present, but it is highly possible that he will utilise the ISDS mechanism to challenge the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already started suing a small nation with similar intent, demanding a colossal sum: equivalent to half of nation's yearly income. Included in the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s delay in utilising seized Russian assets as collateral for its financial support package arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine urgently requires.

False Assurances and Growing Threats

Politicians promised that such things could not occur. Previously, a former prime minister, advocating for the most significant and hazardous of all such treaties, declared: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” An expert on this topic accused critics of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear ISDS claims. Predictions that “as corporations begin to understand the power bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat has now materialised. This year, fossil fuel and resource corporations have filed a historic level of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – government attempts to stop climate breakdown. Firms have to date won vast sums via ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP