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How do you understand our democratic process functions? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Statutes is maintained by the courts. That's it. However, that used to be how it used to work. No longer.

The Emergence of Offshore Tribunals

In the modern era, foreign corporations, along with the wealthy individuals behind them, can sue governments for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are held behind closed doors. In contrast to domestic courts, these bodies grant no opportunity to appeal or legal review. The general public cannot take a case to them, and neither can our government, or even businesses based in this country. Access is granted only to corporations registered abroad.

Should an arbitration panel determines that a legislative action could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

This compensation are based not on actual losses but funds the tribunal officials determine the company would perhaps have made. The administration could be forced to drop the legislation. It becomes discouraged from introducing similar legislation in that area, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as companies observe each other, and hedge funds finance suits in exchange for a share of the settlements. The consequence? Sovereignty and democracy are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the decisions made by parliaments is that this clause has been inserted – absent public approval, and frequently under a climate of total confidentiality – into international trade agreements.

A Specific Case: The Cumbrian Coalmine

Twelve months ago, environmental campaigners won a great victory at the high court. The justice determined that schemes to open the first major coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had no impact on our carbon budgets. The new government subsequently revoked the licence the former government had granted. Currently, this victory could be compromised by an secret arbitration panel accountable to only the corporations bringing the case.

Last August, a corporate entity whose final controllers are located in the Cayman Islands initiated proceedings challenging the UK government. Last week a dispute settlement body in the US capital was set up to adjudicate on it.

The claimant is litigating against the UK for the profits it might have made if the mine had received permission to proceed. We have no idea how much this might be. Which individual is serving as its counsel challenging the British government? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a international entity disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the mining lawsuit was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he will utilise the arbitration process to contest the penalties the UK levied against him following the war in Ukraine. He has previously started suing a small nation for this reason, seeking a colossal sum: an amount representing half nation's yearly budget. Part of the legal team acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

International law scholars argue that the EU’s delay in using frozen state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over elected governments could be blocking the funds Ukraine urgently requires.

Misleading Claims and Mounting Threats

The public was told that these scenarios wouldn’t happen. 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 there has never been a issue in the past.” An expert on this topic described campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations had to worry about ISDS claims. Warnings that “when companies start to realise the influence they now possess, they will turn their attention from the weak nations to the strong ones” were dismissed with scepticism.

That threat is now a reality. Recently, oil and gas and resource corporations have initiated a unprecedented number of suits against nations across the economic spectrum, contesting – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Firms have so far won $114bn through ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP