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Can you reckon our democratic process works? Maybe something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that used to be how it used to work. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, and the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at private courts staffed by commercial attorneys. Such disputes are held behind closed doors. Unlike our courts, these tribunals grant no right of appeal or judicial review. You or I are unable to file a case to them, nor can our government, including enterprises headquartered in this country. Access is granted exclusively to businesses registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s projected profits, it may order damages of hundreds of millions, even billions.

These sums constitute not actual losses but money the tribunal officials conclude the company could potentially have made. The administration may have to drop the legislation. It will be discouraged from passing future laws of a similar nature, for fear of incurring a lawsuit.

A System Running Rampant

Historically high figures of cases are being initiated, as companies take cues from each other, and private equity fund legal actions for a share of a portion of the takings. The outcome? National sovereignty and democracy are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the choices made by elected bodies is that this provision has been incorporated – without public consent, and typically amid an atmosphere of extreme secrecy – inside international trade agreements.

A Specific Case: The Whitehaven Coalmine

Twelve months ago, activists won a great victory at the High Court. The presiding officer found that plans to dig the first deep coalmine in the UK for three decades, in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government then withdrew the consent the former government had approved. Currently, this success is under threat by an secret arbitration panel reporting to no one but the entities petitioning it.

During August, a firm whose final controllers are located in the Cayman Islands initiated proceedings versus the UK government. Recently a tribunal in Washington DC was set up to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Who is acting on its behalf in opposition to the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the high court validates it, then a international entity challenges it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

An Oligarch's Case

On the same day that the tribunal on the coal mine dispute was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he will utilise the tribunal to challenge the restrictions the UK imposed on him after the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, seeking a colossal sum: half that government’s yearly income. Among the counsel on his side? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states might be preventing the finance Ukraine desperately needs.

Empty Promises and Mounting Risks

We were assured that such things could not occur. Previously, a senior politician, promoting the largest and riskiest of all these agreements, stated: “Britain has agreed to trade agreement upon trade deal and there has not been a case in the past.” An adviser on this issue labelled critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Predictions that “once firms start to realise the authority bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were met with scepticism.

That warning has now materialised. This year, fossil fuel and mining firms have lodged a historic level of suits against nations rich and poor, opposing – like the example of the Whitehaven project – state efforts to halt global warming. Companies have thus far won vast sums by using ISDS, of which energy giants have secured $84bn. That represents the combined GDP