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What is your understand our democratic process operates? It could be similar to this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, overseas companies, or the oligarchs who own them, can sue elected administrations for the laws they pass, at private courts made up of business advocates. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals grant no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even businesses based in this country. The door is open exclusively to businesses registered abroad.

When a secret court determines that a legislative action could harm the corporation’s anticipated profits, it can award financial penalties of vast sums, potentially billions.

This compensation are based not on real financial harm but funds the panel members decide the company could potentially have made. The government may have to drop the legislation. It becomes hesitant to passing future laws in that area, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as corporations take cues from each other, and private equity finance suits in return for a share of the settlements. The result? Democratic sovereignty and democratic governance are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the decisions made by legislatures is that this stipulation has been inserted – absent public approval, and frequently under conditions of extreme secrecy – inside international trade agreements.

A Specific Example: The Whitehaven Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The justice determined that schemes to excavate the first deep coalmine in the UK for a generation, in Cumbria, were unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have no consequence on our carbon budgets. The Labour government then withdrew the consent the former government had approved. Today, this legal outcome could be compromised by an offshore tribunal answering to no one but the corporations bringing the case.

Last August, a corporate entity whose final controllers are based in the Cayman Islands lodged a claim against the UK government. Recently a arbitration panel in the United States was convened to hear it.

The company is suing the UK for the revenue it could have earned if the mine had received permission to commence operations. We have no clear indication how much this could amount to. What legal team is serving as its counsel in opposition to the British government? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the high court upholds it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case to date, but it appears probable that he may employ the arbitration process to fight the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has already initiated proceedings against Luxembourg with similar intent, demanding sixteen billion dollars: equivalent to half of government’s annual revenue. Part of the legal team on his side? a prominent lawyer, spouse of the previous PM.

International law scholars believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its financial support package arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, unaccountable authority over elected governments might be preventing the funds Ukraine critically depends on.

False Assurances and Mounting Threats

We were assured that these events could not occur. In 2014, a senior politician, championing the largest and riskiest of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this matter accused critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear such legal actions. Warnings that “as corporations grasp the influence they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were met with general mockery.

That threat has come to pass. Recently, oil and gas and resource corporations have lodged a unprecedented number of cases against nations rich and poor, contesting – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Firms have so far won $114bn through ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP