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How do you understand our democratic process functions? It could be similar to this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. Legislation is maintained by the courts. End of story. Yet, that used to be how it operated in the past. Not anymore.

The Emergence of Secret Arbitration Panels

In the modern era, international firms, and the oligarchs that control them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals staffed by business advocates. These proceedings are conducted in secret. In contrast to domestic courts, these tribunals provide no right of appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, or even companies based in this country. The door is open solely for entities registered abroad.

If a tribunal rules that a government measure could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These sums constitute not real financial harm but funds the tribunal officials determine the company would perhaps have made. The state might be compelled to drop the legislation. It becomes discouraged from enacting future policies along the same lines, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being brought, as firms learn from each other, and investment funds finance suits in return for a portion of the takings. The outcome? Sovereignty and democratic governance are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the decisions taken by legislatures is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – inside international trade agreements.

A Specific Example: The Whitehaven Coal Mine

Last year, activists won a great victory at the High Court. The presiding officer found that plans to dig the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine would have had no impact on national carbon targets. The Labour government then withdrew the permission the previous administration had granted. Today, this legal outcome faces being overturned by an secret arbitration panel reporting to only the companies filing the suit.

In August, a company whose final controllers reside in the tax haven lodged a claim against the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The company is seeking compensation from the UK for the profits it might have made if the mine had been permitted to commence operations. We have no clear indication how much this sum represents. Which individual is acting on its behalf against the UK administration? A sitting MP, and ex-law officer in the Conservative government, that great patriot the MP. The administration passes a law, the domestic court upholds it, then a foreign company disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case at present, but it appears probable that he may employ the arbitration process to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has previously filed a claim against a small nation on these grounds, demanding sixteen billion dollars: half that government’s yearly income. Among the counsel representing him there? a prominent lawyer, married to the previous PM.

Legal experts argue that the EU’s delay in leveraging immobilised Russian assets as security for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over sovereign states might be preventing the funds Ukraine desperately needs.

False Assurances and Growing Costs

The public was told that these scenarios wouldn’t happen. Previously, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “The UK has signed trade deal after trade deal and we have never seen a problem in the past.” An expert on this matter accused activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “when companies grasp the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That prediction has come to pass. In the current period, energy and mining firms have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – like the example of the Whitehaven project – state efforts to stop climate breakdown. Corporations have to date won $114bn via ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP