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Can you reckon our democratic process operates? Perhaps something like this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Statutes is maintained by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Advent of Offshore Arbitration Panels

Today, foreign corporations, or the oligarchs behind them, can sue governments for the regulations they pass, at private courts made up of commercial attorneys. The cases take place away from public scrutiny. In contrast to domestic courts, these tribunals provide no avenue for appeal or legal review. The general public are unable to file a case to them, and neither can our government, including enterprises based in this country. They are open only to corporations based overseas.

If a tribunal rules that a government measure could harm the corporation’s projected profits, it can award damages of vast sums, even billions.

These sums represent not real financial harm but money the panel members decide the company would perhaps have made. The government could be forced to drop the legislation. It will be deterred from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being filed, as corporations take cues from each other, and investment funds fund legal actions in return for a portion of the awards. The outcome? Democratic sovereignty and popular rule are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the decisions taken by legislatures is that this stipulation has been written – without democratic mandate, and frequently under an atmosphere of total confidentiality – inside bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

A year ago, activists won a great victory at the high court. The judge determined that schemes to dig the first deep coalmine in the UK for three decades, in Cumbria, were illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine could have zero effect on climate commitments. The new government subsequently revoked the permission the previous administration had granted. Today, this success faces being overturned by an foreign court accountable to no one but the entities petitioning it.

Last August, a company whose beneficial owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a arbitration panel in the United States was convened to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been permitted to commence operations. Citizens have no idea how much this could amount to. Which individual is representing it challenging the state? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The government makes a decision, the national judiciary upholds it, then a foreign company challenges it through an secretive arbitration panel, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the court on the coal mine dispute was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the restrictions the UK enacted against him after the invasion of Ukraine. He has started suing a small nation for this reason, demanding $16bn: half that state's yearly income. Included in the counsel representing him there? a prominent lawyer, wife of the previous PM.

Legal experts argue that the EU’s hesitation in leveraging immobilised state funds as security for its aid for Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over sovereign states may be obstructing the finance Ukraine critically depends on.

False Assurances and Escalating Costs

The public was told that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “The UK has signed investment treaty after trade deal and there has not been a issue in the past.” An expert on this matter accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations begin to understand the authority they’ve been granted, they will turn their attention from the weak nations to the strong ones” were dismissed with widespread derision.

That threat is now a reality. This year, energy and extraction companies have initiated a unprecedented number of suits against nations rich and poor, opposing – like the example of the Whitehaven project – state efforts to stop climate breakdown. Corporations have thus far won $114bn through ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP