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Can you reckon our democratic process works? It could be something like this. We elect MPs. They vote on bills. If a majority is obtained, the bills pass into law. The law is upheld by the courts. End of story. Well, that’s how it once functioned. No longer.

The Emergence of Offshore Arbitration Panels

Today, international firms, or the wealthy individuals who own them, are able to litigate against governments for the policies they pass, at private courts made up of corporate lawyers. The cases take place in secret. Differing from national judiciaries, these panels grant no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses operating from this country. Access is granted solely for entities operating from foreign soil.

Should an arbitration panel finds that a legislative action might diminish the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, even billions.

These sums are based not on tangible damages but funds the panel members conclude the company could potentially have made. The administration might be compelled to rescind the measure. It will be hesitant to enacting future policies in that area, for fear of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being initiated, as corporations take cues from each other, and private equity fund legal actions in exchange for a cut of the settlements. The result? Democratic sovereignty and democratic governance are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the rulings taken by elected bodies is that this stipulation has been written – without public consent, and often in a climate of total confidentiality – within international trade agreements.

A Concrete Instance: The Whitehaven Coal Mine

A year ago, a conservation group achieved a major legal triumph at the high court. The presiding officer found that proposals 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 outgoing administration, which had agreed to the questionable argument that the mine would have no impact on national carbon targets. The new government subsequently revoked the consent the former government had granted. Currently, this success is under threat by an foreign court answering to only the corporations filing the suit.

Last August, a company whose beneficial owners are located in the Cayman Islands initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was set up to hear it.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to go ahead. The public has no clear indication how much this sum represents. Which individual is acting on its behalf against the state? An elected representative, and former attorney-general in the Conservative government, that great patriot the MP. The state enacts a policy, the national judiciary supports it, then a international entity challenges it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case so far, but it is highly possible that he’ll use the tribunal to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has initiated proceedings against another European state for this reason, demanding $16bn: equivalent to half of nation's annual revenue. Included in the lawyers on his side? Cherie Blair, married to the ex-UK leader.

International law scholars believe that the EU’s hesitation in using frozen oligarchs' funds as security for its loan to Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over democratic administrations may be obstructing the money Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that these events wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, stated: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” An adviser on this matter accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “as corporations start to realise the power bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has come to pass. This year, fossil fuel and extraction companies have initiated a historic level of claims against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have thus far won $114bn via ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP