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What is your understand our democratic process works? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills become law. The law are enforced by the courts. End of story. Well, that was how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, international firms, along with the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at offshore tribunals staffed by corporate lawyers. The cases are conducted in secret. Differing from national judiciaries, these tribunals grant no right of appeal or legal review. The general public are unable to file a case to them, nor can our government, or even businesses headquartered in this country. They are open solely for entities registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These sums are based not on tangible damages but funds the panel members conclude the company would perhaps have made. The state could be forced to abandon its policy. It becomes discouraged from enacting future policies in that area, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being brought, as companies learn from each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The outcome? Democratic sovereignty and popular rule are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the choices taken by elected bodies is that this clause has been inserted – absent public approval, and typically amid an atmosphere of total confidentiality – inside trade treaties.

A Concrete Case: The Cumbrian Coalmine

Last year, a conservation group secured a significant win at the high court. The presiding officer ruled that plans to excavate the first new deep coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The Labour government then withdrew the consent the former government had issued. Now, this victory could be compromised by an offshore tribunal answering to exclusively the corporations petitioning it.

In August, a corporate entity whose ultimate owners are located in the tax haven filed a lawsuit against the UK government. Last week a dispute settlement body in Washington DC was set up to adjudicate on it.

The company is litigating against the UK for the money it might have made if the mine had received permission to go ahead. The public has no clear indication how much this sum represents. What legal team is representing it against the British government? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government makes a decision, the domestic court validates it, then a overseas corporation contests it through an unaccountable private court, and a member of our parliament acts on its behalf.

A Sanctions Case

Simultaneously that the tribunal on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know scarce of the case to date, but it appears probable that he will utilise the ISDS mechanism to fight the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has filed a claim against another European state for this reason, seeking sixteen billion dollars: equivalent to half of state's annual revenue. Among the legal team acting for him in that case? Cherie Blair, married to the ex-UK leader.

Legal experts contend that the EU’s hesitation in leveraging immobilised state funds as guarantee for its financial support package is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over elected governments could be blocking the money Ukraine urgently requires.

False Assurances and Growing Risks

The public was told that these scenarios were not possible. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” A consultant on this issue labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations should be concerned by ISDS claims. Warnings that “when companies begin to understand the power they now possess, they will shift their focus from the weak nations to the developed economies” were greeted by general mockery.

That threat is now a reality. This year, oil and gas and extraction companies have initiated a record number of claims against nations across the economic spectrum, contesting – similar to the UK mine – government attempts to stop global warming. Firms have so far won vast sums via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP