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What is your reckon our democratic process functions? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Legislation is upheld by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, overseas companies, along with the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. These proceedings take place in secret. Unlike our courts, these tribunals grant no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even enterprises based in this country. The door is open solely for corporations based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, potentially billions.

This compensation are based not on actual losses but compensation the tribunal officials conclude the company could potentially have made. The administration might be compelled to abandon its policy. It is discouraged from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as companies learn from each other, and hedge funds finance suits in return for a portion of the awards. The result? Sovereignty and popular rule are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the decisions made by elected bodies is that this stipulation has been written – without democratic mandate, and frequently under conditions of extreme secrecy – within bilateral investment treaties.

A Real-World Example: The Whitehaven Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the high court. The presiding officer determined that schemes to dig the first deep coalmine in the UK for a generation, in Cumbria, were unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had granted. Currently, this victory could be compromised by an foreign court answering to no one but the corporations bringing the case.

During August, a firm whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. The previous week a dispute settlement body in the United States was set up to hear it.

The company is suing the UK for the revenue it would have generated if the mine had received permission to proceed. Citizens have little idea how much this might be. Which individual is serving as its counsel against the UK administration? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration makes a decision, the high court supports it, then a overseas corporation disputes it through an undemocratic private court, and a member of our parliament represents its behalf.

A Sanctions Challenge

On the same day that the court on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case so far, but it seems likely that he may employ the arbitration process to fight the restrictions the UK enacted against him after the invasion of Ukraine. He has already started suing another European state for this reason, demanding sixteen billion dollars: half that state's annual revenue. Among the legal team representing him there? a prominent lawyer, married to the former British prime minister.

International law scholars contend that the EU’s procrastination in utilising seized oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over democratic administrations might be preventing the money Ukraine urgently requires.

False Assurances and Growing Threats

We were assured that such things were not possible. Previously, a former prime minister, advocating for the most significant and hazardous of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this matter described activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations should be concerned by such legal actions. Warnings that “when companies grasp the power bestowed upon them, they will turn their attention from the weak nations to the strong ones” were greeted by widespread derision.

That threat has come to pass. Recently, energy and mining firms have initiated a unprecedented number of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to halt global warming. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP