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How do you understand our democratic process functions? It could be similar to this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. Legislation are enforced by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Emergence of Offshore Tribunals

In the modern era, overseas companies, along with the wealthy individuals who own them, have the power to sue nation states for the regulations they pass, at offshore tribunals composed of business advocates. These proceedings are held in secret. Differing from national judiciaries, these panels allow no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, including businesses based in this country. The door is open only to businesses based overseas.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it may order compensation of vast sums, even billions.

This compensation constitute not actual losses but funds the panel members decide the company could potentially have made. The government could be forced to drop the legislation. It is hesitant to introducing similar legislation in that area, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of legal actions are being initiated, as firms observe each other, and hedge funds bankroll lawsuits for a share of a share of the takings. The outcome? Sovereignty and democracy are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the choices enacted by parliaments is that this clause has been incorporated – without democratic mandate, and often in conditions of total confidentiality – within trade treaties.

A Concrete Example: The UK Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer found that proposals to excavate the first major coal mine in the UK for 30 years, in Cumbria, had been wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government then withdrew the consent the Tories had approved. Today, this success faces being overturned by an secret arbitration panel accountable to no one but the corporations bringing the case.

Last August, a company whose final controllers reside in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to go ahead. Citizens have little idea how much this might be. Which individual is acting on its behalf in opposition to the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the high court upholds it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the panel on the coal mine dispute was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case so far, but it appears probable that he may employ the tribunal to challenge the penalties the UK levied against him after the war in Ukraine. He has already initiated proceedings against another European state with similar intent, claiming $16bn: equivalent to half of government’s annual revenue. Included in the legal team acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Growing Risks

We were assured that these events could not occur. Years ago, a government leader, promoting the most significant and hazardous of all such treaties, told us: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this issue labelled activists of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “as corporations grasp the power they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were greeted by general mockery.

That warning has come to pass. Recently, oil and gas and resource corporations have filed a record number of claims against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – official measures to prevent climate breakdown. Firms have thus far won $114bn by using ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP