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How do you perceive our democratic process works? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that used to be how it used to work. Those days are over.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, and the wealthy individuals who own them, can sue nation states for the laws they pass, at secret arbitration panels made up of commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these bodies allow no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. Access is granted solely for entities registered abroad.

Should an arbitration panel finds that a legislative action could harm the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, even billions.

These awards represent not tangible damages but compensation the tribunal officials decide the company could potentially have made. The administration could be forced to abandon its policy. It is hesitant to passing future laws of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of cases are being filed, as corporations learn from each other, and private equity fund legal actions for a share of a share of the settlements. The consequence? Democratic sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the choices taken by legislatures is that this provision has been inserted – without public consent, and often in a climate of total confidentiality – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The judge ruled that proposals to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have no consequence on national carbon targets. The new government subsequently revoked the licence the previous administration had granted. Today, this success faces being overturned by an foreign court reporting to no one but the companies filing the suit.

In August, a company whose final controllers are based in the Cayman Islands filed a lawsuit versus the UK government. The previous week a arbitration panel in the US capital was set up to hear it.

The company is litigating against the UK for the profits it could have earned if the mine had been allowed to go ahead. Citizens have no clear indication how much this might be. What legal team is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The state enacts a policy, the national judiciary supports it, then a international entity disputes it through an undemocratic private court, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coalmine case was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know little of the case to date, but it appears probable that he will utilise the tribunal to contest the sanctions the UK levied against him following the war in Ukraine. He has previously initiated proceedings against a small nation with similar intent, claiming a colossal sum: an amount representing half nation's yearly budget. Part of the lawyers representing him there? Cherie Blair, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over sovereign states may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that such things wouldn’t happen. Previously, a former prime minister, championing the most significant and hazardous of all these agreements, told us: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An expert on this topic accused campaigners of “alarmism … in reality, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations had to worry about ISDS claims. Warnings that “once firms begin to understand the influence they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were dismissed with widespread derision.

That prediction is now a reality. Recently, energy and resource corporations have lodged a record number of claims against nations across the economic spectrum, opposing – as in the case of the UK mine – government attempts to halt environmental catastrophe. Firms have to date won $114bn through ISDS, of which energy giants have secured $84bn. That equates to the combined GDP