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How do you reckon our democratic process operates? Perhaps similar to this. We elect MPs. They vote on bills. Should a majority is obtained, the bills become law. Statutes are enforced by the courts. That's it. Yet, that used to be how it once functioned. No longer.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, and the oligarchs who own them, are able to litigate against nation states for the policies they pass, at secret arbitration panels composed of commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these panels provide no right of appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, including businesses based in this country. The door is open only to corporations registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

These sums represent not real financial harm but compensation the tribunal officials determine the company could potentially have made. The administration might be compelled to rescind the measure. It will be discouraged from introducing similar legislation in that area, worried about being sued.

A Mechanism Running Rampant

Record numbers of cases are being filed, as companies take cues from each other, and private equity bankroll lawsuits in return for a cut of the awards. The consequence? National sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the choices taken by legislatures is that this clause has been incorporated – without public consent, and typically amid a climate of total confidentiality – within international trade agreements.

A Specific Instance: The Cumbrian Coal Mine

A year ago, activists secured a significant win at the senior court. The justice determined that plans to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The Labour government then withdrew the permission the Tories had granted. Now, this success could be compromised by an foreign court answering to only the companies filing the suit.

In August, a corporate entity whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was set up to consider the case.

This firm is suing the UK for the profits it could have earned if the mine had received permission to commence operations. The public has little idea how much this sum represents. Who is serving as its counsel challenging the state? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot the MP. The government enacts a policy, the high court supports it, then a international entity contests it through an secretive private court, and a member of our parliament works for its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coalmine case was convened, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case at present, but it appears probable that he’ll use the arbitration process to challenge the penalties the UK enacted against him after the war in Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, claiming $16bn: an amount representing half state's yearly income. Included in the counsel on his side? a prominent lawyer, spouse of the former British prime minister.

Legal experts contend that the EU’s delay in utilising seized Russian assets as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Mounting Costs

We were assured that these events were not possible. Previously, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “The UK has signed investment treaty upon trade deal and there has never been a case in the past.” A consultant on this issue accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations had to worry about ISDS claims. Warnings that “once firms begin to understand the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by widespread derision.

That prediction has now materialised. Recently, oil and gas and resource corporations have lodged a record number of suits against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – state efforts to halt environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That equates to the combined GDP