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Can you reckon our democratic process operates? Maybe along the lines of this. We elect MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. End of story. Well, that’s how it operated in the past. No longer.

The Advent of Secret Arbitration Panels

Nowadays, international firms, or the oligarchs behind them, can sue governments for the laws they pass, at secret arbitration panels made up of commercial attorneys. The cases take place away from public scrutiny. Unlike our courts, these panels provide no right of appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. The door is open exclusively to entities operating from foreign soil.

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, even billions.

These sums constitute not actual losses but money the arbitrators conclude the company would perhaps have made. The government might be compelled to drop the legislation. It will be hesitant to enacting future policies along the same lines, worried about incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of cases are being initiated, as corporations learn from each other, and investment funds finance suits in exchange for a share of the awards. The outcome? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the rulings made by legislatures is that this stipulation has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coalmine

Last year, activists secured a significant win at the high court. The justice found that schemes to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine would have had zero effect on climate commitments. The new government later cancelled the licence the Tories had issued. Currently, this victory is under threat by an offshore tribunal reporting to only the companies filing the suit.

In August, a firm whose ultimate owners reside in the offshore financial centre lodged a claim against the UK government. The previous week a tribunal in the US capital was established to hear it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to proceed. Citizens have little idea how much this sum represents. Which individual is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government makes a decision, the national judiciary validates it, then a foreign company challenges it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

On the same day that the court on the mining lawsuit was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case so far, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has previously started suing a small nation with similar intent, seeking $16bn: half that state's annual revenue. Included in the legal team representing him there? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists contend that the EU’s hesitation in utilising seized state funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over sovereign states may be obstructing the funds Ukraine urgently requires.

False Assurances and Mounting Costs

Politicians promised that these events could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” A consultant on this topic labelled activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Predictions that “once firms begin to understand the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by scepticism.

That prediction has now materialised. In the current period, oil and gas and extraction companies have filed a record number of claims against nations rich and poor, contesting – similar to the Cumbrian coalmine – official measures to stop climate breakdown. Firms have thus far won $114bn via ISDS, of which energy giants have been awarded the majority. That represents the combined GDP