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Can you understand our democratic process operates? It could be something like this. We elect MPs. They vote on bills. Should a majority is achieved, the bills pass into law. The law are enforced by the courts. End of story. Yet, that was how it operated in the past. Those days are over.

The Advent of Shadow Arbitration Panels

In the modern era, international firms, and the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, including companies headquartered in this country. They are open exclusively to corporations operating from foreign soil.

Should an arbitration panel rules that a legislative action may compromise the corporation’s anticipated profits, it can award damages of hundreds of millions, potentially billions.

This compensation represent not real financial harm but compensation the tribunal officials conclude the company would perhaps have made. The administration might be compelled to rescind the measure. It becomes deterred from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of cases are being initiated, as corporations learn from each other, and hedge funds finance suits in exchange for a portion of the takings. The consequence? Democratic sovereignty and democracy are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the decisions taken by elected bodies is that this clause has been inserted – without public consent, and often in a climate of profound opacity – inside international trade agreements.

A Concrete Case: The UK Coal Mine

Last year, a conservation group secured a significant win at the High Court. The justice ruled that proposals to dig the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had no impact on national carbon targets. The incoming administration then withdrew the licence the Tories had issued. Currently, this legal outcome could be compromised by an offshore tribunal answering to exclusively the entities bringing the case.

In August, a company whose beneficial owners are based in the offshore financial centre filed a lawsuit versus the UK government. Recently a arbitration panel in the US capital was set up to hear it.

The claimant is litigating against the UK for the money it might have made if the mine had received permission to go ahead. The public has little idea how much this could amount to. What legal team is acting on its behalf challenging the UK administration? An elected representative, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he’ll use the ISDS mechanism to fight the penalties the UK imposed on him after the invasion of Ukraine. He has previously initiated proceedings against another European state for this reason, demanding a colossal sum: an amount representing half state's yearly income. Part of the lawyers on his side? the wife of a former prime minister, married to the ex-UK leader.

International law scholars argue that the EU’s delay in utilising seized oligarchs' funds as security for its loan to Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states could be blocking the funds Ukraine desperately needs.

Empty Promises and Mounting Threats

Politicians promised that these events wouldn’t happen. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” An expert on this issue labelled activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “as corporations begin to understand the influence they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That prediction has come to pass. Recently, energy and extraction companies have lodged a historic level of suits against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – official measures to halt global warming. Companies have thus far won $114bn by using ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP