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How do you perceive our democratic process functions? Perhaps similar to this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Legislation is maintained by the courts. That's it. Yet, that was how it operated in the past. Those days are over.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, and the oligarchs behind them, have the power to sue nation states for the laws they pass, at private courts made up of business advocates. Such disputes are held 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, nor can our government, or even enterprises based in this country. They are open exclusively to corporations based overseas.

If a tribunal finds that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These sums constitute not actual losses but funds the panel members decide the company would perhaps have made. The administration might be compelled to abandon its policy. It will be discouraged from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of disputes are being initiated, as firms observe each other, and private equity finance suits in return for a portion of the awards. The result? National sovereignty and democratic governance are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the decisions taken by elected bodies is that this clause has been incorporated – absent public approval, and often in conditions of extreme secrecy – inside trade treaties.

A Concrete Case: The Cumbrian Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The justice ruled that plans to excavate the first major coal mine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The incoming administration subsequently revoked the licence the previous administration had approved. Today, this success faces being overturned by an foreign court answering to only the corporations bringing the case.

In August, a firm whose beneficial owners are based in the offshore financial centre initiated proceedings challenging the UK government. The previous week a tribunal in the United States was convened to hear it.

The company is suing the UK for the money it would have generated if the mine had been permitted to proceed. We have little idea how much this might be. Who is representing it challenging the British government? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the high court supports it, then a foreign company disputes it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case so far, but it seems likely that he may employ the arbitration process to fight the sanctions the UK enacted against him after the invasion of Ukraine. He has already initiated proceedings against a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of nation's yearly budget. Part of the lawyers on his side? Cherie Blair, wife of the ex-UK leader.

Legal experts argue that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states might be preventing the money Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that these scenarios could not occur. In 2014, a former prime minister, advocating for the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter labelled campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations begin to understand the power they’ve been granted, they will shift their focus from the poorer states to the strong ones” were greeted by scepticism.

That prediction has now materialised. This year, oil and gas and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – government attempts to prevent climate breakdown. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP