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How do you understand our democratic process operates? Maybe similar to this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that was how it operated in the past. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals who own them, have the power to sue elected administrations for the regulations they pass, at offshore tribunals composed of corporate lawyers. These proceedings are held away from public scrutiny. Differing from national judiciaries, these panels allow no right of appeal or judicial review. You or I are unable to file a case to them, nor can our government, including enterprises headquartered in this country. The door is open solely for businesses operating from foreign soil.

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

This compensation constitute not actual losses but funds the tribunal officials conclude the company would perhaps have made. The administration might be compelled to abandon its policy. It becomes discouraged from introducing similar legislation in that area, due to the risk of being sued.

A System Spiralling Out of Control

Unprecedented levels of cases are being filed, as corporations learn from each other, and private equity fund legal actions in exchange for a portion of the awards. The outcome? Sovereignty and democratic governance are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the decisions made by legislatures is that this stipulation has been incorporated – without democratic mandate, and frequently under conditions of profound opacity – into trade treaties.

A Specific Case: The Whitehaven Coal Mine

Last year, a conservation group won a great victory at the high court. The presiding officer determined that schemes to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine could have zero effect on our carbon budgets. The incoming administration subsequently revoked the consent the Tories had issued. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to only the entities bringing the case.

In August, a firm whose ultimate owners are located in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was convened to hear it.

The company is suing the UK for the money it could have earned if the mine had received permission to proceed. Citizens have no clear indication how much this might be. Who is acting on its behalf challenging the UK administration? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a elected official works for its behalf.

A Sanctions Challenge

Concurrently that the court on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case at present, but it seems likely that he’ll use the arbitration process to fight the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against another European state on these grounds, seeking sixteen billion dollars: half that state's annual revenue. Among the lawyers acting for him in that case? Cherie Blair, spouse of the former British prime minister.

Legal experts contend that the EU’s procrastination in utilising seized state funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states might be preventing the money Ukraine desperately needs.

False Assurances and Mounting Risks

Politicians promised that these events could not occur. Previously, a senior politician, promoting the biggest and most dangerous of all such treaties, told us: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” A consultant on this topic accused activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “when companies grasp the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were dismissed with widespread derision.

That prediction has now materialised. This year, energy and extraction companies have lodged a record number of cases against nations across the economic spectrum, contesting – similar to the UK mine – state efforts to prevent global warming. Firms have to date won $114bn by using ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP