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Can you reckon our democratic process functions? Maybe along the lines of this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that’s how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, international firms, and the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at private courts made up of corporate lawyers. These proceedings are held in secret. In contrast to domestic courts, these tribunals allow no right of appeal or legal review. The general public are unable to file a case to them, and neither can our government, including companies based in this country. They are open exclusively to corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation are based not on tangible damages but funds the panel members determine the company could potentially have made. The government might be compelled to rescind the measure. It is deterred from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of legal actions are being filed, as firms observe each other, and hedge funds bankroll lawsuits for a share of a portion of the takings. The outcome? Sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the decisions made by parliaments is that this stipulation has been written – without public consent, and frequently under an atmosphere of extreme secrecy – into bilateral investment treaties.

A Specific Case: The Whitehaven Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The judge determined that schemes to open the first deep coalmine in the UK for a generation, in northwest England, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine could have no impact on our carbon budgets. The new government subsequently revoked the licence the Tories had issued. Today, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the entities filing the suit.

In August, a firm whose beneficial owners reside in the tax haven lodged a claim challenging the UK government. Last week a arbitration panel in Washington DC was set up to consider the case.

The company is suing the UK for the profits it might have made if the mine had been permitted to commence operations. The public has no clear indication how much this might be. Who is representing it challenging the state? An elected representative, and previous senior legal advisor in the previous government, the noted patriot the MP. The state enacts a policy, the high court supports it, then a international entity contests it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case to date, but it appears probable that he’ll use the tribunal to fight the penalties the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against another European state with similar intent, seeking a colossal sum: an amount representing half state's annual revenue. Part of the counsel representing him there? a prominent lawyer, married to the ex-UK leader.

Legal experts argue that the EU’s procrastination in leveraging immobilised state funds as security for its loan to Ukraine is due to concerns within Belgium that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over sovereign states may be obstructing the money Ukraine critically depends on.

False Assurances and Escalating Risks

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, promoting the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” A consultant on this matter described campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “once firms grasp the influence they’ve been granted, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That prediction is now a reality. This year, fossil fuel and resource corporations have filed a record number of suits against nations across the economic spectrum, contesting – similar to the UK mine – state efforts to halt environmental catastrophe. Firms have to date won $114bn via ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP