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How do you perceive our democratic process functions? Perhaps something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals composed of commercial attorneys. These proceedings are held away from public scrutiny. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. The general public cannot take a case to them, nor can our government, or even enterprises based in this country. The door is open solely for corporations registered abroad.

Should an arbitration panel finds that a government measure might diminish the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These awards are based not on tangible damages but money the tribunal officials decide the company would perhaps have made. The administration may have to abandon its policy. It becomes hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being initiated, as companies observe each other, and investment funds bankroll lawsuits in return for a portion of the settlements. The consequence? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions made by legislatures is that this provision has been written – without democratic mandate, and typically amid an atmosphere of total confidentiality – inside international trade agreements.

A Real-World Instance: The Cumbrian Coal Mine

Last year, activists won a great victory at the High Court. The judge determined that schemes to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the licence the former government had granted. Now, this legal outcome could be compromised by an offshore tribunal answering to only the entities petitioning it.

During August, a firm whose ultimate owners are based in the tax haven initiated proceedings versus the UK government. Recently a tribunal in Washington DC was convened to adjudicate on it.

The claimant is suing the UK for the revenue it might have made if the mine had been permitted to proceed. Citizens have little idea how much this might be. What legal team is acting on its behalf in opposition to the UK administration? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The administration passes a law, the domestic court validates it, then a international entity challenges it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case at present, but it is highly possible that he’ll use the tribunal to contest the sanctions the UK levied against him following the Russian aggression. He has started suing a small nation with similar intent, demanding $16bn: half that government’s yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

Legal experts believe that the EU’s procrastination in using frozen state funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over democratic administrations may be obstructing the funds Ukraine desperately needs.

Empty Promises and Growing Risks

We were assured that such things were not possible. Previously, a government leader, championing the most significant and hazardous of all such treaties, told us: “The UK has signed trade deal after trade deal and we have never seen a problem in the past.” A consultant on this topic described critics of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear ISDS claims. Warnings that “once firms begin to understand the authority they’ve been granted, they will shift their focus from the poorer states to the strong ones” were greeted by general mockery.

That prediction has now materialised. In the current period, energy and extraction companies have filed a historic level of cases against nations across the economic spectrum, challenging – similar to the Whitehaven project – official measures to halt climate breakdown. Companies have thus far won $114bn via ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP