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How do you reckon our democratic process operates? Perhaps something like this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation is upheld by the courts. End of story. Well, that’s how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

In the modern era, overseas companies, and the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at private courts staffed by commercial attorneys. These proceedings take place in secret. Unlike our courts, these panels allow no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses based in this country. Access is granted only to corporations based overseas.

If a tribunal rules that a legislative action might diminish the corporation’s anticipated profits, it has the power to grant damages of vast sums, running into billions.

These sums are based not on tangible damages but money the arbitrators conclude the company could potentially have made. The administration could be forced to rescind the measure. It becomes discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms observe each other, and investment funds bankroll lawsuits in exchange for a portion of the takings. The consequence? Democratic sovereignty and democratic governance are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the choices enacted by parliaments is that this stipulation has been written – absent public approval, and often in an atmosphere of total confidentiality – within trade treaties.

A Specific Example: The UK Coalmine

A year ago, a conservation group achieved a major legal triumph at the High Court. The judge determined that schemes to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have zero effect on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had approved. Currently, this success faces being overturned by an secret arbitration panel accountable to only the entities petitioning it.

Last August, a corporate entity whose final controllers are located in the offshore financial centre initiated proceedings versus the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to commence operations. The public has little idea how much this could amount to. Which individual is serving as its counsel challenging the state? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The administration makes a decision, the domestic court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coal mine dispute was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case to date, but it is highly possible that he will utilise the ISDS mechanism to contest the penalties the UK imposed on him following the invasion of Ukraine. He has filed a claim against a small nation for this reason, claiming sixteen billion dollars: half that government’s annual revenue. Included in the legal team on his side? Cherie Blair, wife of the previous PM.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as guarantee for its financial support package arises from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

Politicians promised that these scenarios wouldn’t happen. Previously, a senior politician, advocating for the biggest and most dangerous of all such treaties, told us: “Britain has agreed to investment treaty upon trade deal and there has never been a problem in the past.” An adviser on this topic labelled campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries needed to fear these lawsuits. Warnings that “when companies grasp the power they now possess, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That threat has now materialised. Recently, energy and resource corporations have filed a historic level of claims against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Corporations have thus far won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP