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Can you perceive our democratic process functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law is upheld by the courts. That's it. However, that was how it operated in the past. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, and the oligarchs behind them, have the power to sue governments for the policies they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are held away from public scrutiny. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even companies operating from this country. Access is granted exclusively to businesses registered abroad.

If a tribunal determines that a law or policy may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These sums constitute not real financial harm but compensation the panel members decide the company could potentially have made. The government might be compelled to abandon its policy. It will be hesitant to introducing similar legislation along the same lines, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being brought, as companies learn from each other, and private equity fund legal actions in exchange for a share of the settlements. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the rulings enacted by legislatures is that this provision has been incorporated – without democratic mandate, and frequently under conditions of extreme secrecy – inside trade treaties.

A Concrete Case: The UK Coalmine

A year ago, activists secured a significant win at the senior court. The presiding officer ruled that plans to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The incoming administration subsequently revoked the consent the Tories had approved. Today, this victory is under threat by an foreign court reporting to exclusively the entities filing the suit.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was established to consider the case.

This firm is suing the UK for the profits it could have earned if the mine had received permission to commence operations. Citizens have no clear indication how much this might be. What legal team is acting on its behalf in opposition to the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The administration passes a law, the high court upholds it, then a overseas corporation challenges it through an undemocratic private court, and a sitting MP represents its behalf.

The Russian Case

Simultaneously that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case to date, but it is highly possible that he may employ the tribunal to challenge the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has started suing a small nation on these grounds, seeking $16bn: half that government’s yearly budget. Included in the lawyers acting for him in that case? Cherie Blair, spouse of the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as collateral for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

Empty Promises and Growing Costs

The public was told that these scenarios were not possible. In 2014, a government leader, championing the most significant and hazardous of all these agreements, declared: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” A consultant on this issue labelled campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations should be concerned by such legal actions. Predictions that “as corporations begin to understand the authority they now possess, they will turn their attention from the weak nations to the developed economies” were greeted by widespread derision.

That prediction is now a reality. This year, fossil fuel and extraction companies have lodged a unprecedented number of suits against nations across the economic spectrum, challenging – like the example of the UK mine – state efforts to stop climate breakdown. Corporations have to date won $114bn through ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP