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How do you perceive our democratic process operates? Maybe something like this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills pass into law. The law is maintained by the courts. That's it. Well, that was how it once functioned. Those days are over.

The Emergence of Shadow Arbitration Panels

In the modern era, international firms, and the wealthy individuals who own them, can sue elected administrations for the laws they pass, at private courts composed of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even companies based in this country. The door is open exclusively to corporations operating from foreign soil.

Should an arbitration panel rules that a legislative action could harm the corporation’s anticipated profits, it may order compensation of vast sums, running into billions.

This compensation represent not real financial harm but money the panel members determine the company would perhaps have made. The administration may have to rescind the measure. It becomes hesitant to passing future laws in that area, worried about being sued.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as corporations observe each other, and hedge funds bankroll lawsuits in return for a cut of the settlements. The outcome? Sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the decisions made by elected bodies is that this stipulation has been incorporated – without democratic mandate, and typically amid an atmosphere of total confidentiality – inside international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

Twelve months ago, activists secured a significant win at the senior court. The justice found that plans to open the first deep coalmine in the UK for three decades, in northwest England, had been wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine would have zero effect on national carbon targets. The Labour government later cancelled the permission the previous administration had approved. Now, this success is under threat by an foreign court answering to only the entities bringing the case.

During August, a firm whose beneficial owners are located in the offshore financial centre initiated proceedings versus the UK government. Recently a dispute settlement body in the United States was convened to adjudicate on it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to proceed. We have no clear indication how much this sum represents. Which individual is serving as its counsel in opposition to the UK administration? An elected representative, and ex-law officer in the outgoing administration, that great patriot the MP. The state makes a decision, the national judiciary validates it, then a international entity disputes it through an undemocratic private court, and a elected official represents its behalf.

An Oligarch's Challenge

On the same day that the panel on the coal mine dispute was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know scarce of the case so far, but it is highly possible that he will utilise the tribunal to challenge the sanctions the UK imposed on him following the Russian aggression. He has filed a claim against Luxembourg on these grounds, demanding $16bn: equivalent to half of government’s yearly income. Among the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

Trade specialists argue that the EU’s hesitation in utilising seized state funds as collateral for its aid for Ukraine is due to concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that these events were not possible. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” A consultant on this matter accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear ISDS claims. Warnings that “when companies start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the strong ones” were met with scepticism.

That threat has come to pass. In the current period, fossil fuel and extraction companies have filed a unprecedented number of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – government attempts to prevent climate breakdown. Companies have so far won $114bn via ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP