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How do you reckon our democratic process operates? Maybe along the lines of this. We elect MPs. They legislate on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. However, that used to be how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals behind them, have the power to sue governments for the policies they pass, at secret arbitration panels composed of business advocates. The cases take place in secret. Unlike our courts, these bodies allow no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, including enterprises operating from this country. The door is open solely for businesses registered abroad.

Should an arbitration panel rules that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

These awards represent not tangible damages but compensation the tribunal officials decide the company would perhaps have made. The administration might be compelled to rescind the measure. It becomes discouraged from introducing similar legislation of a similar nature, worried about facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being filed, as corporations take cues from each other, and private equity bankroll lawsuits in return for a portion of the awards. The result? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the decisions made by elected bodies is that this stipulation has been inserted – absent public approval, and typically amid a climate of profound opacity – within bilateral investment treaties.

A Real-World Instance: The Cumbrian Coalmine

A year ago, a conservation group secured a significant win at the high court. The presiding officer determined that schemes to open the first deep coalmine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine could have no impact on climate commitments. The Labour government then withdrew the licence the former government had approved. Currently, this legal outcome is under threat by an secret arbitration panel reporting to exclusively the entities petitioning it.

In August, a company whose beneficial owners are based in the Cayman Islands filed a lawsuit versus the UK government. The previous week a arbitration panel in the United States was established to adjudicate on it.

The claimant is suing the UK for the revenue it might have made if the mine had been permitted to commence operations. The public has no clear indication how much this could amount to. Who is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a international entity contests it through an secretive arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Case

Simultaneously that the court on the coalmine case was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case so far, but it appears probable that he’ll use the ISDS mechanism to fight the restrictions the UK imposed on him following the invasion of Ukraine. He has filed a claim against a small nation on these grounds, claiming $16bn: equivalent to half of state's yearly budget. Included in the lawyers acting for him in that case? Cherie Blair, wife of the former British prime minister.

Trade specialists contend that the EU’s delay in using frozen Russian assets as collateral for its financial support package stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over elected governments may be obstructing the money Ukraine critically depends on.

Empty Promises and Growing Costs

We were assured that these scenarios wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade agreement upon trade deal and we have never seen a issue in the past.” An adviser on this matter labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “once firms start to realise the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That warning is now a reality. Recently, energy and extraction companies have filed a unprecedented number of cases against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to halt environmental catastrophe. Corporations have thus far won $114bn via ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP