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How do you perceive our democratic process functions? Maybe along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it used to work. No longer.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, or the oligarchs behind them, can sue governments for the policies they pass, at secret arbitration panels made up of business advocates. The cases take place in secret. In contrast to domestic courts, these tribunals allow no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. They are open only to businesses registered abroad.

When a secret court determines that a legislative action could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions, potentially billions.

This compensation represent not real financial harm but money the tribunal officials decide the company would perhaps have made. The administration might be compelled to drop the legislation. It will be discouraged from introducing similar legislation of a similar nature, worried about being sued.

A Process Growing Exponentially

Historically high figures of cases are being initiated, as companies learn from each other, and hedge funds finance suits in exchange for a share of the awards. The consequence? Democratic sovereignty and democratic governance are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the choices made by parliaments is that this stipulation has been incorporated – without public consent, and frequently under a climate of extreme secrecy – into trade treaties.

A Real-World Example: The UK Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The judge found that schemes to dig the first major coal mine in the UK for three decades, in northwest England, were wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine would have no consequence on national carbon targets. The incoming administration later cancelled the permission the previous administration had approved. Now, this success is under threat by an offshore tribunal answering to only the entities petitioning it.

During August, a company whose beneficial owners are located in the tax haven filed a lawsuit challenging the UK government. Recently a arbitration panel in Washington DC was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to go ahead. We have little idea how much this sum represents. Who is representing it against the UK administration? An elected representative, and former attorney-general in the previous government, that great patriot the MP. The government enacts a policy, the high court supports it, then a overseas corporation contests it through an undemocratic private court, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it is highly possible that he will utilise the ISDS mechanism to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has initiated proceedings against another European state for this reason, demanding $16bn: half that state's yearly income. Included in the counsel on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over elected governments may be obstructing the money Ukraine urgently requires.

False Assurances and Mounting Threats

We were assured that these events were not possible. In 2014, a senior politician, championing the largest and riskiest of all such treaties, declared: “Britain has agreed to investment treaty after trade deal and there has never been a case in the past.” A consultant on this matter described critics of “alarmism … in reality, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries had to worry about ISDS claims. Warnings that “once firms grasp the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat is now a reality. This year, oil and gas and resource corporations have lodged a unprecedented number of claims against nations both wealthy and developing, challenging – as in the case of the UK mine – state efforts to stop climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured the majority. That equates to the combined GDP