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Can you reckon our democratic process works? Maybe similar to this. The public votes for MPs. They vote on bills. If a majority is secured, the bills pass into law. Statutes is upheld by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, or the oligarchs who own them, can sue governments for the regulations they pass, at private courts made up of corporate lawyers. The cases take place behind closed doors. In contrast to domestic courts, these panels allow no right of appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even enterprises based in this country. Access is granted exclusively to businesses operating from foreign soil.

Should an arbitration panel rules that a law or policy could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions, even billions.

These sums constitute not tangible damages but funds the tribunal officials decide the company might otherwise have made. The state may have to drop the legislation. It is hesitant to enacting future policies in that area, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of legal actions are being initiated, as firms observe each other, and investment funds fund legal actions in return for a portion of the awards. The consequence? Democratic sovereignty and popular rule are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the choices made by legislatures is that this provision has been inserted – absent public approval, and frequently under a climate of profound opacity – within international trade agreements.

A Specific Case: The Cumbrian Coal Mine

Twelve months ago, activists secured a significant win at the high court. The presiding officer found that proposals to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine would have zero effect on our carbon budgets. The Labour government subsequently revoked the consent the former government had issued. Currently, this success could be compromised by an foreign court reporting to only the corporations filing the suit.

Last August, a firm whose final controllers are located in the tax haven initiated proceedings against the UK government. Recently a dispute settlement body in the United States was convened to hear it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this sum represents. What legal team is acting on its behalf against the British government? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a international entity disputes it through an undemocratic private court, and a member of our parliament acts on its behalf.

A Sanctions Challenge

On the same day that the tribunal on the mining lawsuit was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case to date, but it appears probable that he will utilise the arbitration process to fight the restrictions the UK levied against him subsequent to the war in Ukraine. He has already filed a claim against a small nation with similar intent, demanding sixteen billion dollars: equivalent to half of government’s annual revenue. Among the lawyers representing him there? the wife of a former prime minister, wife of the former British prime minister.

Legal experts believe that the EU’s hesitation in leveraging immobilised Russian assets as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the funds Ukraine desperately needs.

Empty Promises and Growing Risks

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, championing the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement upon trade deal and we have never seen a issue in the past.” A consultant on this topic labelled activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations needed to fear ISDS claims. Warnings that “as corporations grasp the influence they now possess, they will turn their attention from the weak nations to the developed economies” were greeted by general mockery.

That threat is now a reality. In the current period, oil and gas and extraction companies have filed a unprecedented number of claims against nations rich and poor, challenging – as in the case of the Whitehaven project – government attempts to halt global warming. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP