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How do you reckon our democratic process operates? Maybe along the lines of this. The public votes for MPs. They vote on bills. If a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. Well, that used to be how it operated in the past. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, or the billionaires who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted behind closed doors. Unlike our courts, these panels grant no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, including businesses headquartered in this country. They are open only to entities based overseas.

If a tribunal finds that a law or policy might diminish the corporation’s anticipated profits, it can award compensation of vast sums, running into billions.

These sums are based not on tangible damages but compensation the tribunal officials decide the company would perhaps have made. The administration may have to drop the legislation. It is hesitant to introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being filed, as companies take cues from each other, and private equity fund legal actions in exchange for a portion of the awards. The consequence? National sovereignty and democracy are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the decisions taken by parliaments is that this provision has been incorporated – without public consent, and frequently under a climate of profound opacity – inside trade treaties.

A Concrete Instance: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer found that schemes to excavate the first deep coalmine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have had no consequence on climate commitments. The incoming administration subsequently revoked the consent the former government had approved. Currently, this success could be compromised by an offshore tribunal answering to exclusively the companies filing the suit.

Last August, a company whose final controllers reside in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in the US capital was convened to hear it.

The company is litigating against the UK for the revenue it could have earned if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel challenging the British government? An elected representative, and former attorney-general in the previous government, the noted patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the tribunal on the coalmine case was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case to date, but it is highly possible that he may employ the tribunal to challenge the penalties the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against Luxembourg for this reason, claiming $16bn: equivalent to half of nation's yearly income. Included in the legal team on his side? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over elected governments could be blocking the funds Ukraine critically depends on.

Misleading Claims and Mounting Risks

The public was told that these events wouldn’t happen. In 2014, a senior politician, advocating for the biggest and most dangerous of all these agreements, stated: “We’ve signed trade agreement upon trade deal and there has never been a problem in the past.” A consultant on this matter described campaigners of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Warnings that “when companies begin to understand the authority they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were greeted by scepticism.

That warning has now materialised. Recently, energy and resource corporations have filed a historic level of suits against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – state efforts to stop global warming. Firms have to date won $114bn via ISDS, of which energy giants have been awarded eighty-four billion dollars. That represents the combined GDP