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What is your understand our democratic process works? It could be similar to this. We elect MPs. They vote on bills. When a majority is secured, the bills are enacted as law. The law is upheld by the courts. Simple as that. However, that’s how it used to work. No longer.

The Rise of Shadow Arbitration Panels

Today, international firms, or the billionaires who own them, can sue governments for the regulations they pass, at offshore tribunals made up of commercial attorneys. Such disputes are held in secret. In contrast to domestic courts, these panels provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, including businesses operating from this country. Access is granted only to corporations registered abroad.

When a secret court rules that a legislative action might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not tangible damages but compensation the arbitrators decide the company might otherwise have made. The government could be forced to rescind the measure. It is deterred from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of disputes are being initiated, as companies take cues from each other, and hedge funds fund legal actions for a share of a portion of the settlements. The consequence? National sovereignty and popular rule are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the choices made by legislatures is that this stipulation has been written – absent public approval, and often in an atmosphere of profound opacity – inside international trade agreements.

A Specific Example: The Cumbrian Coal Mine

Last year, a conservation group won a great victory at the high court. The judge ruled that proposals to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine could have no impact on national carbon targets. The incoming administration later cancelled the licence the previous administration had approved. Today, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the corporations filing the suit.

In August, a firm whose ultimate owners reside in the tax haven initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was convened to hear it.

The claimant is litigating against the UK for the money it might have made if the mine had received permission to commence operations. The public has no idea how much this sum represents. Who is serving as its counsel in opposition to the state? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot the MP. The state passes a law, the domestic court upholds it, then a foreign company challenges it through an undemocratic private court, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coal mine dispute was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know scarce of the case so far, but it appears probable that he’ll use the arbitration process to fight the penalties the UK imposed on him after the Russian aggression. He has started suing Luxembourg on these grounds, claiming a colossal sum: half that state's annual revenue. Included in the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as security for its financial support package is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over democratic administrations could be blocking the funds Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that these scenarios were not possible. Years ago, a government leader, championing the largest and riskiest of all investment pacts, declared: “We’ve signed investment treaty upon trade deal and there has not been a issue in the past.” An expert on this issue accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations should be concerned by these lawsuits. Predictions that “as corporations grasp the authority they now possess, they will turn their attention from the weak nations to the wealthy nations” were greeted by general mockery.

That warning is now a reality. In the current period, oil and gas and extraction companies have lodged a record number of suits against nations both wealthy and developing, challenging – as in the case of the UK mine – state efforts to halt climate breakdown. Firms have to date won vast sums by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP