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Can you perceive our democratic process functions? Perhaps something like this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. The law is maintained by the courts. That's it. Yet, that used to be how it once functioned. Not anymore.

The Advent of Shadow Tribunals

Today, international firms, and the oligarchs who own them, have the power to sue elected administrations for the policies they pass, at offshore tribunals composed of corporate lawyers. These proceedings take place behind closed doors. Unlike our courts, these panels allow no avenue for appeal or judicial review. The general public are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted exclusively to corporations operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it can award financial penalties of vast sums, running into billions.

These awards are based not on tangible damages but compensation the tribunal officials conclude the company could potentially have made. The administration might be compelled to drop the legislation. It is hesitant to introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A System Growing Exponentially

Record numbers of cases are being initiated, as companies learn from each other, and investment funds bankroll lawsuits for a share of a cut of the settlements. The outcome? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the choices taken by elected bodies is that this provision has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – into international trade agreements.

A Real-World Case: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the high court. The justice determined that schemes to open the first major coal mine in the UK for 30 years, in northwest England, had been illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had zero effect on our carbon budgets. The Labour government subsequently revoked the permission the Tories had issued. Currently, this success faces being overturned by an offshore tribunal reporting to exclusively the corporations bringing the case.

During August, a corporate entity whose ultimate owners are located in the offshore financial centre lodged a claim versus the UK government. Last week a arbitration panel in Washington DC was established to consider the case.

This firm is suing the UK for the profits it might have made if the mine had received permission to go ahead. The public has no clear indication how much this might be. What legal team is representing it in opposition to the British government? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The government enacts a policy, the national judiciary validates it, then a foreign company challenges it through an secretive private court, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case at present, but it appears probable that he may employ the arbitration process to contest the penalties the UK enacted against him following the invasion of Ukraine. He has started suing another European state with similar intent, seeking a colossal sum: an amount representing half government’s yearly budget. Part of the counsel acting for him in that case? Cherie Blair, spouse of the previous PM.

International law scholars argue that the EU’s hesitation in utilising seized state funds as security for its financial support package stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over elected governments may be obstructing the finance Ukraine critically depends on.

False Assurances and Mounting Risks

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, championing the largest and riskiest of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” An adviser on this matter labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms start to realise the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were met with general mockery.

That warning has come to pass. This year, oil and gas and mining firms have lodged a record number of cases against nations both wealthy and developing, opposing – like the example of the Whitehaven project – state efforts to halt climate breakdown. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP