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How do you reckon our democratic process functions? Perhaps similar to this. We elect MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Well, that was how it operated in the past. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, international firms, along with the wealthy individuals that control them, can sue elected administrations for the policies they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are held in secret. In contrast to domestic courts, these bodies allow no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. Access is granted solely for businesses based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it can award compensation of vast sums, running into billions.

These awards constitute not tangible damages but compensation the tribunal officials decide the company might otherwise have made. The state may have to drop the legislation. It is deterred from passing future laws in that area, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Historically high figures of disputes are being brought, as corporations learn from each other, and private equity finance suits for a share of a portion of the takings. The result? Sovereignty and democratic governance are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the decisions enacted by elected bodies is that this stipulation has been inserted – absent public approval, and often in an atmosphere of extreme secrecy – into trade treaties.

A Concrete Example: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the senior court. The justice ruled that proposals to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have no impact on climate commitments. The incoming administration subsequently revoked the licence the previous administration had granted. Currently, this success faces being overturned by an secret arbitration panel reporting to exclusively the companies bringing the case.

During August, a corporate entity whose ultimate owners are located in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in Washington DC was established to adjudicate on it.

This firm is litigating against the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this could amount to. What legal team is serving as its counsel in opposition to the UK administration? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The government passes a law, the national judiciary supports it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case so far, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK enacted against him after the invasion of Ukraine. He has previously started suing a small nation for this reason, demanding a colossal sum: half that state's yearly income. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

Trade specialists contend that the EU’s delay in using frozen state funds as collateral for its financial support package is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

False Assurances and Escalating Threats

The public was told that such things wouldn’t happen. In 2014, a government leader, championing the most significant and hazardous of all these agreements, declared: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” A consultant on this issue labelled critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “once firms grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were greeted by general mockery.

That warning has now materialised. In the current period, fossil fuel and resource corporations have lodged a record number of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Corporations have so far won vast sums by using ISDS, of which oil majors have obtained $84bn. That represents the combined GDP