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Can you perceive our democratic process works? Maybe along the lines of this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills become law. The law is maintained by the courts. That's it. Yet, that was how it once functioned. No longer.

The Emergence of Shadow Tribunals

Today, foreign corporations, along with the oligarchs that control them, can sue governments for the regulations they pass, at private courts composed of corporate lawyers. The cases are conducted in secret. Unlike our courts, these tribunals allow no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, including businesses based in this country. The door is open exclusively to corporations operating from foreign soil.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

This compensation represent not actual losses but funds the panel members conclude the company would perhaps have made. The government could be forced to drop the legislation. It is discouraged from introducing similar legislation in that area, worried about incurring a lawsuit.

A System Running Rampant

Unprecedented levels of cases are being brought, as companies take cues from each other, and investment funds finance suits for a share of a portion of the takings. The result? Democratic sovereignty and democracy are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the decisions taken by parliaments is that this clause has been incorporated – absent public approval, and typically amid an atmosphere of total confidentiality – inside international trade agreements.

A Concrete Case: The UK Coal Mine

Twelve months ago, activists secured a significant win at the senior court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine would have no impact on our carbon budgets. The incoming administration later cancelled the consent the former government had issued. Currently, this victory faces being overturned by an secret arbitration panel accountable to only the entities petitioning it.

During August, a firm whose ultimate owners are located in the offshore financial centre initiated proceedings challenging the UK government. Last week a arbitration panel in the US capital was established to hear it.

The company is suing the UK for the revenue it might have made if the mine had been allowed to proceed. We have no idea how much this sum represents. What legal team is representing it challenging the state? An elected representative, and previous senior legal advisor in the previous government, that great patriot the MP. The government enacts a policy, the high court supports it, then a international entity challenges it through an unaccountable private court, and a elected official acts on its behalf.

An Oligarch's Challenge

Concurrently that the panel on the mining lawsuit was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case to date, but it appears probable that he’ll use the tribunal to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has started suing another European state with similar intent, seeking sixteen billion dollars: half that government’s yearly budget. Among the legal team representing him there? a prominent lawyer, spouse of the previous PM.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

Empty Promises and Mounting Threats

Politicians promised that these events wouldn’t happen. Previously, a government leader, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An expert on this topic described campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear ISDS claims. Warnings that “once firms begin to understand the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were met with general mockery.

That warning has now materialised. In the current period, oil and gas and extraction companies have lodged a unprecedented number of suits against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained the majority. That represents the combined GDP