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Can you perceive our democratic process functions? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that’s how it operated in the past. Not anymore.

The Emergence of Offshore Arbitration Panels

Today, international firms, or the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at secret arbitration panels staffed by corporate lawyers. The cases take place behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or judicial review. The general public cannot take a case to them, and neither can our government, or even companies based in this country. Access is granted solely for businesses operating from foreign soil.

If a tribunal finds that a legislative action could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, potentially billions.

These sums are based not on real financial harm but money the tribunal officials decide the company could potentially have made. The government might be compelled to drop the legislation. It is discouraged from passing future laws in that area, due to the risk of being sued.

A System Growing Exponentially

Record numbers of legal actions are being initiated, as corporations observe each other, and private equity finance suits in exchange for a portion of the awards. The consequence? National sovereignty and democratic governance are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the rulings enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid conditions of profound opacity – within bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

Last year, activists won a great victory at the High Court. The judge found that proposals to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine would have zero effect on climate commitments. The new government subsequently revoked the consent the former government had granted. Today, this success could be compromised by an offshore tribunal reporting to only the entities filing the suit.

Last August, a company whose ultimate owners are based in the Cayman Islands lodged a claim challenging the UK government. Last week a dispute settlement body in the US capital was established to hear it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. Citizens have little idea how much this sum represents. What legal team is representing it in opposition to the British government? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a international entity challenges it through an secretive offshore tribunal, and a sitting MP represents its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case so far, but it appears probable that he will utilise the ISDS mechanism to challenge the sanctions the UK imposed on him following the invasion of Ukraine. He has previously initiated proceedings against another European state for this reason, demanding sixteen billion dollars: equivalent to half of nation's yearly income. Part of the lawyers on his side? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in utilising seized Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium 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 finance Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that such things wouldn’t happen. Previously, a government leader, promoting the most significant and hazardous of all these agreements, stated: “We’ve signed trade agreement upon trade deal and there has never been a problem in the past.” An expert on this topic labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries needed to fear such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by widespread derision.

That threat has come to pass. In the current period, energy and mining firms have filed a historic level of suits against nations across the economic spectrum, opposing – like the example of the Cumbrian coalmine – state efforts to stop global warming. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP