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How do you perceive our democratic process operates? Maybe along the lines of this. We elect MPs. They vote on bills. Should a majority is obtained, the bills become law. Statutes are enforced by the courts. Simple as that. However, that used to be how it once functioned. Those days are over.

The Rise of Shadow Tribunals

In the modern era, foreign corporations, or the wealthy individuals behind them, can sue nation states for the regulations they pass, at private courts made up of commercial attorneys. These proceedings take place in secret. Differing from national judiciaries, these tribunals allow no avenue for appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. Access is granted exclusively to businesses operating from foreign soil.

Should an arbitration panel determines that a legislative action may compromise the corporation’s projected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

These awards represent not actual losses but compensation the panel members decide the company would perhaps have made. The government could be forced to rescind the measure. It becomes deterred from enacting future policies along the same lines, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of cases are being initiated, as corporations learn from each other, and investment funds finance suits in return for a cut of the awards. The consequence? Democratic sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the choices enacted by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of profound opacity – inside trade treaties.

A Specific Case: The Whitehaven Coalmine

Twelve months ago, activists secured a significant win at the senior court. The justice found that plans to dig the first major coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have had no consequence on national carbon targets. The Labour government subsequently revoked the licence the previous administration had issued. Today, this success could be compromised by an secret arbitration panel accountable to no one but the corporations petitioning it.

Last August, a company whose ultimate owners are based in the offshore financial centre filed a lawsuit versus the UK government. The previous week a tribunal in the United States was convened to hear it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had received permission to go ahead. We have no clear indication how much this sum represents. Which individual is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The administration passes a law, the high court upholds it, then a international entity contests it through an secretive arbitration panel, and a elected official acts on its behalf.

The Russian Case

Concurrently that the tribunal on the coalmine case was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. The public knows nothing of the case to date, but it seems likely that he may employ the ISDS mechanism to contest the sanctions the UK enacted against him after the invasion of Ukraine. He has previously filed a claim against Luxembourg on these grounds, seeking sixteen billion dollars: equivalent to half of nation's yearly budget. Among the legal team acting for him in that case? Cherie Blair, wife of the former British prime minister.

Legal experts argue that the EU’s procrastination in leveraging immobilised Russian assets as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over elected governments may be obstructing the money Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that such things wouldn’t happen. In 2014, a senior politician, championing the largest and riskiest of all investment pacts, declared: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this issue described campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations should be concerned by such legal actions. Predictions that “once firms begin to understand the influence they’ve been granted, they will shift their focus from the weak nations to the developed economies” were met with scepticism.

That threat has now materialised. This year, oil and gas and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Companies have to date won vast sums through ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP