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Can you reckon our democratic process operates? It could be along the lines of this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Well, that was how it used to work. No longer.

The Advent of Secret Arbitration Panels

Nowadays, foreign corporations, or the oligarchs that control them, are able to litigate against elected administrations for the laws they pass, at private courts made up of commercial attorneys. These proceedings take place behind closed doors. Unlike our courts, these bodies allow no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses based in this country. The door is open solely for businesses operating from foreign soil.

If a tribunal determines that a government measure could harm the corporation’s anticipated profits, it can award damages of hundreds of millions, running into billions.

These sums constitute not tangible damages but compensation the arbitrators decide the company would perhaps have made. The state could be forced to drop the legislation. It becomes discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of cases are being initiated, as companies learn from each other, and private equity fund legal actions in return for a portion of the awards. The result? National sovereignty and democracy are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices enacted by legislatures is that this clause has been inserted – absent public approval, and often in conditions of total confidentiality – within international trade agreements.

A Specific Example: The Cumbrian Coalmine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The judge found that plans to dig the first deep coalmine in the UK for 30 years, in northwest England, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no consequence on national carbon targets. The Labour government subsequently revoked the permission the Tories had approved. Currently, this legal outcome faces being overturned by an foreign court answering to no one but the corporations petitioning it.

In August, a company whose ultimate owners reside in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a dispute settlement body in the United States was established to hear it.

The company is seeking compensation from the UK for the money it would have generated if the mine had received permission to proceed. The public has no idea how much this sum represents. What legal team is acting on its behalf in opposition to the state? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot the MP. The state enacts a policy, the high court upholds it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a elected official represents its behalf.

A Sanctions Lawsuit

On the same day that the panel on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he will utilise the arbitration process to fight the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, demanding a colossal sum: equivalent to half of government’s yearly budget. Included in the legal team acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Legal experts argue that the EU’s hesitation in using frozen Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over elected governments may be obstructing the money Ukraine urgently requires.

False Assurances and Escalating Threats

We were assured that these events were not possible. In 2014, a senior politician, advocating for the most significant and hazardous of all these agreements, told us: “We’ve signed trade agreement after trade deal and we have never seen a problem in the past.” An expert on this matter described activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear such legal actions. Cautionary notes that “when companies grasp the power they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were met with general mockery.

That threat is now a reality. Recently, oil and gas and resource corporations have filed a record number of claims against nations both wealthy and developing, challenging – like the example of the UK mine – official measures to halt global warming. Firms have so far won vast sums through ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP