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Can you reckon our democratic process operates? It could be something like this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. The law is upheld by the courts. End of story. Well, that was how it used to work. Those days are over.

The Rise of Offshore Courts

Nowadays, international firms, or the wealthy individuals that control them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels made up of commercial attorneys. The cases take place in secret. Differing from national judiciaries, these tribunals provide no right of appeal or legal review. You or I cannot take a case to them, nor can our government, or even businesses based in this country. Access is granted exclusively to corporations operating from foreign soil.

If a tribunal determines that a law or policy might diminish the corporation’s anticipated profits, it may order damages of vast sums, even billions.

These awards are based not on tangible damages but funds the tribunal officials determine the company might otherwise have made. The government could be forced to drop the legislation. It becomes discouraged from passing future laws in that area, for fear of being sued.

A Process Running Rampant

Record numbers of cases are being filed, as companies observe each other, and investment funds fund legal actions for a share of a portion of the awards. The consequence? National sovereignty and popular rule are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the choices taken by parliaments is that this stipulation has been inserted – absent public approval, and typically amid an atmosphere of profound opacity – into trade treaties.

A Real-World Instance: The UK Coalmine

A year ago, a conservation group secured a significant win at the high court. The judge ruled that proposals to dig the first major coal mine in the UK for 30 years, in northwest England, had been unlawfully approved by the previous government, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had approved. Now, this success faces being overturned by an foreign court answering to only the companies bringing the case.

During August, a company whose beneficial owners reside in the offshore financial centre filed a lawsuit versus the UK government. Last week a dispute settlement body in the United States was established to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. The public has no clear indication how much this could amount to. Who is representing it in opposition to the British government? An elected representative, and ex-law officer in the previous government, that great patriot the MP. The administration enacts a policy, the high court validates it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

Simultaneously that the panel on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he may employ the ISDS mechanism to fight the sanctions the UK levied against him after the Russian aggression. He has already started suing a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of state's yearly budget. Among the lawyers on his side? the wife of a former prime minister, married to the former British prime minister.

Legal experts contend that the EU’s hesitation in utilising seized Russian assets as security for its financial support package arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over democratic administrations could be blocking the funds Ukraine urgently requires.

Empty Promises and Escalating Risks

The public was told that such things were not possible. Years ago, a senior politician, championing the largest and riskiest of all investment pacts, declared: “We’ve signed trade deal after trade deal and there has not been a case in the past.” A consultant on this matter described critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries needed to fear such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were greeted by scepticism.

That warning is now a reality. This year, oil and gas and extraction companies have initiated a historic level of claims against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – government attempts to prevent climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP