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How do you perceive our democratic process works? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills become law. The law is maintained by the courts. End of story. However, that used to be how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

Today, international firms, or the oligarchs who own them, can sue nation states for the policies they pass, at private courts staffed by corporate lawyers. Such disputes are held away from public scrutiny. Differing from national judiciaries, these bodies grant no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including enterprises headquartered in this country. They are open solely for corporations registered abroad.

Should an arbitration panel finds that a law or policy might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, potentially billions.

These awards are based not on real financial harm but compensation the panel members conclude the company would perhaps have made. The state might be compelled to drop the legislation. It becomes discouraged from introducing similar legislation of a similar nature, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being initiated, as corporations learn from each other, and private equity fund legal actions for a share of a portion of the awards. The consequence? National sovereignty and popular rule are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the choices taken by legislatures is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of profound opacity – inside international trade agreements.

A Real-World Example: The Cumbrian Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The judge found that proposals to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had endorsed the questionable argument that the mine could have no impact on national carbon targets. The Labour government subsequently revoked the licence the previous administration had approved. Now, this victory faces being overturned by an offshore tribunal accountable to only the entities filing the suit.

In August, a company whose beneficial owners are based in the tax haven filed a lawsuit challenging the UK government. Last week a arbitration panel in the United States was established to adjudicate on it.

The company is litigating against the UK for the money it would have generated if the mine had been permitted to go ahead. Citizens have no clear indication how much this might be. Which individual is representing it against the UK administration? A sitting MP, and ex-law officer in the Conservative government, that great patriot the MP. The state enacts a policy, the national judiciary supports it, then a foreign company contests it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case at present, but it appears probable that he may employ the tribunal to fight the sanctions the UK imposed on him subsequent to the Russian aggression. He has filed a claim against Luxembourg with similar intent, claiming a colossal sum: equivalent to half of nation's annual revenue. Part of the lawyers on his side? Cherie Blair, spouse of the ex-UK leader.

Legal experts believe that the EU’s delay in utilising seized oligarchs' funds as guarantee for its financial support package stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over democratic administrations might be preventing the money Ukraine urgently requires.

Misleading Claims and Mounting Risks

Politicians promised that these scenarios could not occur. Previously, a former prime minister, promoting the largest and riskiest of all these agreements, stated: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” An adviser on this matter described activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries had to worry about such legal actions. Predictions that “as corporations begin to understand the power they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with widespread derision.

That threat has now materialised. In the current period, fossil fuel and mining firms have filed a unprecedented number of claims against nations rich and poor, opposing – similar to the UK mine – official measures to prevent global warming. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP