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How do you reckon our democratic process works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that was how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, and the wealthy individuals who own them, have the power to sue elected administrations for the policies they pass, at private courts staffed by commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, including businesses operating from this country. The door is open exclusively to corporations based overseas.

If a tribunal determines that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of vast sums, even billions.

This compensation are based not on real financial harm but funds the tribunal officials conclude the company could potentially have made. The administration could be forced to drop the legislation. It will be hesitant to introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as companies learn from each other, and private equity finance suits in exchange for a portion of the awards. The consequence? National sovereignty and democratic governance are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the rulings made by elected bodies is that this clause has been written – absent public approval, and often in an atmosphere of total confidentiality – into trade treaties.

A Concrete Case: The Cumbrian Coalmine

Last year, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that plans to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government later cancelled the licence the previous administration had granted. Now, this success faces being overturned by an foreign court answering to no one but the corporations filing the suit.

During August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings challenging the UK government. Recently a dispute settlement body in the US capital was established to consider the case.

The claimant is suing the UK for the profits it could have earned if the mine had been permitted to commence operations. The public has little idea how much this sum represents. Who is representing it against the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The state makes a decision, the national judiciary upholds it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coal mine dispute was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case so far, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK enacted against him subsequent to the Russian aggression. He has already filed a claim against Luxembourg on these grounds, claiming $16bn: equivalent to half of nation's yearly income. Part of the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists contend that the EU’s procrastination in utilising seized state funds as security for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments might be preventing the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

We were assured that these events could not occur. Years ago, a government leader, advocating for the largest and riskiest of all investment pacts, declared: “We’ve signed trade agreement upon trade deal and there has not been a issue in the past.” A consultant on this matter labelled campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear ISDS claims. Predictions that “as corporations start to realise the authority they now possess, they will shift their focus from the vulnerable countries to the developed economies” were greeted by general mockery.

That threat has come to pass. This year, oil and gas and mining firms have filed a record number of cases against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – official measures to halt global warming. Companies have thus far won $114bn by using ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP