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What is your understand our democratic process works? Maybe similar to this. We elect MPs. They vote on bills. When a majority is obtained, the bills become law. Legislation is upheld by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

Today, international firms, and the wealthy individuals who own them, can sue governments for the laws they pass, at offshore tribunals composed of corporate lawyers. These proceedings take place in secret. In contrast to domestic courts, these panels allow no opportunity to appeal or legal review. You or I are unable to file a case to them, just as our government, including enterprises operating from this country. The door is open solely for entities operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s anticipated profits, it can award damages of vast sums, potentially billions.

These awards constitute not actual losses but compensation the panel members conclude the company would perhaps have made. The administration could be forced to abandon its policy. It will be discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A System Growing Exponentially

Record numbers of legal actions are being brought, as firms observe each other, and private equity bankroll lawsuits for a share of a cut of the awards. The outcome? Sovereignty and popular rule are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the rulings enacted by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid a climate of profound opacity – within international trade agreements.

A Specific Example: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the high court. The justice ruled that plans to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the consent the previous administration had issued. Now, this victory is under threat by an foreign court answering to exclusively the corporations bringing the case.

During August, a firm whose beneficial owners are located in the offshore financial centre lodged a claim against the UK government. Last week a dispute settlement body in the United States was established to consider the case.

The claimant is suing the UK for the revenue it could have earned if the mine had received permission to commence operations. We have no idea how much this sum represents. Which individual is serving as its counsel against the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government enacts a policy, the high court upholds it, then a international entity contests it through an secretive private court, and a member of our parliament represents its behalf.

An Oligarch's Case

Concurrently that the panel on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case to date, but it appears probable that he may employ the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg for this reason, claiming sixteen billion dollars: an amount representing half government’s annual revenue. Among the lawyers representing him there? Cherie Blair, married to the previous PM.

International law scholars contend that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine is due to concerns within Belgium that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Mounting Threats

The public was told that these events were not possible. Years ago, a senior politician, championing the biggest and most dangerous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” A consultant on this matter accused critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “once firms grasp the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction has come to pass. In the current period, fossil fuel and extraction companies have lodged a historic level of cases against nations rich and poor, opposing – like the example of the Cumbrian coalmine – official measures to prevent global warming. Firms have so far won vast sums via ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP