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Can you understand our democratic process works? It could be similar to this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Statutes are enforced by the courts. Simple as that. Yet, that used to be how it once functioned. Not anymore.

The Emergence of Offshore Courts

Nowadays, overseas companies, or the wealthy individuals that control them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are held in secret. Differing from national judiciaries, these bodies allow no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including companies headquartered in this country. The door is open solely for corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions, potentially billions.

This compensation represent not actual losses but funds the tribunal officials determine the company could potentially have made. The state could be forced to abandon its policy. It becomes deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of cases are being filed, as corporations take cues from each other, and private equity bankroll lawsuits for a share of a portion of the takings. The outcome? National sovereignty and democracy are turning into too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the decisions made by legislatures is that this clause has been incorporated – without public consent, and frequently under an atmosphere of profound opacity – inside international trade agreements.

A Concrete Case: The UK Coalmine

Twelve months ago, activists secured a significant win at the High Court. The judge determined that schemes to dig the first deep coalmine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine could have no impact on climate commitments. The incoming administration subsequently revoked the consent the previous administration had approved. Today, this legal outcome is under threat by an secret arbitration panel reporting to no one but the entities petitioning it.

During August, a corporate entity whose beneficial owners are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in Washington DC was established to hear it.

This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to proceed. The public has little idea how much this sum represents. What legal team is acting on its behalf in opposition to the UK administration? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the national judiciary validates it, then a international entity contests it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case to date, but it is highly possible that he will utilise the arbitration process to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has previously started suing Luxembourg with similar intent, demanding $16bn: an amount representing half government’s yearly income. Part of the counsel acting for him in that case? Cherie Blair, wife of the former British prime minister.

International law scholars contend that the EU’s procrastination in using frozen oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over elected governments might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Risks

We were assured that these events could not occur. Years ago, a senior politician, championing the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal upon trade deal and we have never seen a problem in the past.” An adviser on this topic accused critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states had to worry about these lawsuits. Warnings that “once firms grasp the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That threat is now a reality. This year, oil and gas and resource corporations have lodged a record number of cases against nations both wealthy and developing, opposing – like the example of the UK mine – state efforts to halt global warming. Corporations have thus far won vast sums by using ISDS, of which oil majors have secured $84bn. That represents the combined GDP