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Can you understand our democratic process works? Perhaps similar to this. We elect 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. However, that used to be how it operated in the past. Not anymore.

The Emergence of Offshore Tribunals

Today, overseas companies, along with the wealthy individuals who own them, have the power to sue governments for the laws they pass, at private courts staffed by commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these bodies grant no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses headquartered in this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it has the power to grant financial penalties of vast sums, potentially billions.

These sums represent not tangible damages but money the panel members conclude the company could potentially have made. The government might be compelled to rescind the measure. It is deterred from enacting future policies along the same lines, for fear of facing litigation.

A System Growing Exponentially

Unprecedented levels of disputes are being filed, as companies learn from each other, and investment funds fund legal actions in return for a share of the awards. The result? Democratic sovereignty and popular rule are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the rulings enacted by parliaments is that this stipulation has been inserted – without public consent, and often in conditions of profound opacity – inside bilateral investment treaties.

A Specific Example: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the senior court. The presiding officer found that schemes to excavate the first major coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The incoming administration later cancelled the licence the former government had approved. Today, this legal outcome is under threat by an offshore tribunal accountable to exclusively the corporations filing the suit.

During August, a firm whose ultimate owners are located in the tax haven lodged a claim against the UK government. Recently a arbitration panel in the US capital was set up to consider the case.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to commence operations. We have no clear indication how much this might be. Which individual is representing it challenging the British government? An elected representative, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The government enacts a policy, the domestic court supports it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case so far, but it is highly possible that he will utilise the ISDS mechanism to fight the penalties the UK imposed on him after the war in Ukraine. He has already filed a claim against a small nation with similar intent, demanding a colossal sum: equivalent to half of state's annual revenue. Among the counsel representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars argue that the EU’s delay in leveraging immobilised state funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine critically depends on.

Misleading Claims and Escalating Threats

We were assured that such things could not occur. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this matter described campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear these lawsuits. Predictions that “as corporations start to realise the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were met with widespread derision.

That threat has come to pass. In the current period, oil and gas and extraction companies have filed a record number of claims against nations both wealthy and developing, opposing – similar to the UK mine – official measures to halt global warming. Corporations have to date won $114bn through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP