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How do you perceive our democratic process works? It could be something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. That's it. However, that used to be how it operated in the past. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals behind them, are able to litigate against governments for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes are conducted behind closed doors. Unlike our courts, these bodies provide no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, including enterprises based in this country. The door is open only to entities operating from foreign soil.

If a tribunal rules that a law or policy could harm the corporation’s expected profits, it has the power to grant compensation of vast sums, running into billions.

These awards constitute not tangible damages but compensation the arbitrators determine the company would perhaps have made. The administration could be forced to abandon its policy. It is deterred from introducing similar legislation in that area, worried about incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of disputes are being filed, as companies learn from each other, and investment funds bankroll lawsuits in return for a cut of the settlements. The result? Democratic sovereignty and democratic governance are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the rulings enacted by elected bodies is that this stipulation has been written – without democratic mandate, and typically amid a climate of profound opacity – into bilateral investment treaties.

A Real-World Example: The Whitehaven Coal Mine

Last year, activists secured a significant win at the senior court. The justice found that schemes to open the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The Labour government subsequently revoked the permission the Tories had issued. Currently, this victory faces being overturned by an foreign court answering to only the corporations bringing the case.

During August, a firm whose ultimate owners reside in the tax haven filed a lawsuit versus the UK government. Recently a dispute settlement body in Washington DC was set up to adjudicate on it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been allowed to proceed. Citizens have little idea how much this sum represents. Who is acting on its behalf challenging the British government? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The state enacts a policy, the high court upholds it, then a foreign company contests it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

The Russian Lawsuit

Concurrently that the court on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case to date, but it seems likely that he will utilise the tribunal to fight the restrictions the UK imposed on him after the Russian aggression. He has previously initiated proceedings against Luxembourg on these grounds, claiming a colossal sum: half that state's yearly budget. Among the counsel acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over democratic administrations could be blocking the finance Ukraine urgently requires.

Empty Promises and Mounting Risks

We were assured that these scenarios were not possible. Years ago, a government leader, promoting the most significant and hazardous of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has never been a problem in the past.” An adviser on this issue described activists of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by ISDS claims. Predictions that “once firms grasp the power they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were met with widespread derision.

That warning has come to pass. Recently, fossil fuel and mining firms have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – like the example of the UK mine – government attempts to halt climate breakdown. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded the majority. That represents the combined GDP