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How do you perceive our democratic process operates? Maybe similar to this. We elect MPs. They legislate on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. Well, that’s how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

Today, international firms, along with the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels composed of corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these panels grant no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises based in this country. Access is granted exclusively to businesses operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions, even billions.

These awards constitute not real financial harm but money the tribunal officials determine the company would perhaps have made. The administration may have to abandon its policy. It will be hesitant to enacting future policies in that area, for fear of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being filed, as companies observe each other, and private equity bankroll lawsuits in exchange for a cut of the takings. The consequence? National sovereignty and democracy are now too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the choices made by parliaments is that this clause has been incorporated – absent public approval, and typically amid conditions of extreme secrecy – inside bilateral investment treaties.

A Real-World Example: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the senior court. The justice determined that schemes to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine would have no consequence on climate commitments. The new government subsequently revoked the licence the Tories had issued. Today, this victory faces being overturned by an foreign court reporting to no one but the entities petitioning it.

In August, a firm whose ultimate owners are located in the Cayman Islands initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was established to consider the case.

This firm is seeking compensation from the UK for the profits it might have made if the mine had been allowed to commence operations. We have no idea how much this could amount to. What legal team is serving as its counsel challenging the state? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The government enacts a policy, the national judiciary upholds it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

On the same day that the court on the coal mine dispute was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he’ll use the tribunal to fight the sanctions the UK enacted against him after the Russian aggression. He has filed a claim against another European state on these grounds, claiming sixteen billion dollars: an amount representing half nation's annual revenue. Included in the lawyers representing him there? a prominent lawyer, spouse of the former British prime minister.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations could be blocking the finance Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that these scenarios wouldn’t happen. Years ago, a senior politician, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this issue accused activists of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states needed to fear ISDS claims. Warnings that “as corporations grasp the influence bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were met with widespread derision.

That warning has now materialised. This year, fossil fuel and resource corporations have initiated a unprecedented number of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – state efforts to stop environmental catastrophe. Corporations have to date won $114bn through ISDS, of which energy giants have obtained the majority. That equates to the combined GDP