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How do you perceive our democratic process functions? Perhaps similar to this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. Legislation are enforced by the courts. Simple as that. However, that’s how it once functioned. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, or the oligarchs who own them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these tribunals grant no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies based in this country. The door is open only to businesses based overseas.

When a secret court finds that a legislative action may compromise the corporation’s projected profits, it has the power to grant compensation of vast sums, potentially billions.

This compensation are based not on actual losses but compensation the arbitrators determine the company would perhaps have made. The state may have to rescind the measure. It becomes deterred from enacting future policies along the same lines, due to the risk of being sued.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as firms take cues from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The consequence? Sovereignty and democracy are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings taken by parliaments is that this stipulation has been inserted – absent public approval, and typically amid conditions of extreme secrecy – within international trade agreements.

A Concrete Case: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the senior court. The justice found that proposals to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine could have zero effect on climate commitments. The incoming administration later cancelled the permission the Tories had approved. Currently, this victory faces being overturned by an secret arbitration panel reporting to only the corporations filing the suit.

Last August, a company whose final controllers are located in the Cayman Islands lodged a claim challenging the UK government. Last week a arbitration panel in Washington DC was established to consider the case.

This firm is litigating against the UK for the revenue it might have made if the mine had received permission to go ahead. We have little idea how much this might be. Who is acting on its behalf in opposition to the state? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the high court supports it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case at present, but it seems likely that he may employ the arbitration process to challenge the restrictions the UK enacted against him after the war in Ukraine. He has already initiated proceedings against another European state on these grounds, claiming a colossal sum: equivalent to half of state's annual revenue. Part of the counsel representing him there? Cherie Blair, wife of the ex-UK leader.

Legal experts contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states might be preventing the funds Ukraine urgently requires.

False Assurances and Escalating Risks

The public was told that these scenarios could not occur. Previously, a senior politician, championing the largest and riskiest of all such treaties, declared: “The UK has signed investment treaty upon trade deal and there has never been a case in the past.” A consultant on this topic described activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “when companies grasp the power they now possess, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That prediction has now materialised. This year, oil and gas and mining firms have initiated a unprecedented number of suits against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – official measures to stop climate breakdown. Companies have thus far won vast sums via ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP