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How do you understand our democratic process functions? Maybe along the lines of this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation is upheld by the courts. End of story. Yet, that used to be how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs behind them, have the power to sue elected administrations for the regulations they pass, at private courts staffed by corporate lawyers. The cases take place away from public scrutiny. Unlike our courts, these bodies grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including companies operating from this country. They are open only to businesses registered abroad.

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

These sums represent not actual losses but compensation the tribunal officials conclude the company would perhaps have made. The government may have to drop the legislation. It will be discouraged from enacting future policies along the same lines, for fear of facing litigation.

A System Growing Exponentially

Record numbers of disputes are being brought, as firms learn from each other, and private equity finance suits in exchange for a cut of the takings. The outcome? Sovereignty and popular rule are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the choices enacted by elected bodies is that this stipulation has been written – absent public approval, and typically amid a climate of profound opacity – within trade treaties.

A Concrete Case: The Whitehaven Coalmine

Last year, activists secured a significant win at the High Court. The justice ruled that schemes to dig the first major coal mine in the UK for three decades, in Cumbria, had been unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine could have zero effect on national carbon targets. The incoming administration subsequently revoked the consent the former government had granted. Currently, this victory could be compromised by an secret arbitration panel reporting to exclusively the corporations petitioning it.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands lodged a claim challenging the UK government. The previous week a arbitration panel in the US capital was convened to consider the case.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to go ahead. Citizens have no idea how much this might be. What legal team is acting on its behalf against the state? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The administration makes a decision, the national judiciary supports it, then a foreign company contests it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

The Russian Case

On the same day that the tribunal on the coalmine case was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case to date, but it appears probable that he’ll use the ISDS mechanism to contest the restrictions the UK enacted against him following the Russian aggression. He has started suing a small nation with similar intent, claiming sixteen billion dollars: half that nation's yearly budget. Included in the legal team on his side? a prominent lawyer, spouse of the ex-UK leader.

International law scholars contend that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments could be blocking the funds Ukraine urgently requires.

Empty Promises and Mounting Costs

Politicians promised that these scenarios wouldn’t happen. In 2014, a former prime minister, promoting the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade deal upon trade deal and there has never been a case in the past.” An adviser on this matter described critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about ISDS claims. Predictions that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the poorer states to the strong ones” were greeted by scepticism.

That threat has come to pass. Recently, energy and mining firms have initiated a unprecedented number of cases against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Firms have to date won $114bn through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP