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Can you reckon our democratic process operates? Perhaps something like this. Citizens choose MPs. They vote on bills. When a majority is secured, the bills become law. The law is maintained by the courts. That's it. Yet, that used to be how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, along with the oligarchs that control them, have the power to sue governments for the policies they pass, at offshore tribunals composed of business advocates. These proceedings take place away from public scrutiny. Differing from national judiciaries, these panels allow no right of appeal or legal review. The general public cannot take a case to them, just as our government, including companies operating from this country. Access is granted only to corporations operating from foreign soil.

When a secret court determines that a government measure may compromise the corporation’s expected profits, it may order damages of hundreds of millions of pounds, running into billions.

This compensation are based not on actual losses but funds the arbitrators determine the company might otherwise have made. The administration might be compelled to rescind the measure. It will be deterred from introducing similar legislation in that area, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being filed, as firms take cues from each other, and investment funds bankroll lawsuits in exchange for a share of the takings. The result? Democratic sovereignty and democracy are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the rulings enacted by elected bodies is that this clause has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – within bilateral investment treaties.

A Concrete Case: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the senior court. The justice found that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, had been unlawfully approved by the previous government, which had accepted the questionable argument that the mine would have had no consequence on our carbon budgets. The new government then withdrew the consent the previous administration had issued. Currently, this success could be compromised by an secret arbitration panel answering to exclusively the corporations petitioning it.

In August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. Recently a arbitration panel in the United States was set up to adjudicate on it.

The company is seeking compensation from the UK for the money it might have made if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. What legal team is representing it against the state? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The state makes a decision, the national judiciary upholds it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official works for its behalf.

A Sanctions Lawsuit

Concurrently that the court on the mining lawsuit was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case to date, but it seems likely that he will utilise the tribunal to fight the sanctions the UK imposed on him following the war in Ukraine. He has already filed a claim against another European state for this reason, seeking $16bn: equivalent to half of state's annual revenue. Among the lawyers on his side? Cherie Blair, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen Russian assets as security for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine urgently requires.

False Assurances and Mounting Risks

Politicians promised that such things wouldn’t happen. Previously, a government leader, advocating for the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement after trade deal and we have never seen a issue in the past.” A consultant on this topic accused activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations needed to fear ISDS claims. Warnings that “as corporations begin to understand the authority they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That prediction is now a reality. This year, fossil fuel and resource corporations have lodged a record number of suits against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to halt environmental catastrophe. Corporations have thus far won $114bn via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP