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How do you perceive our democratic process functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that was how it once functioned. Those days are over.

The Advent of Secret Arbitration Panels

In the modern era, international firms, along with the wealthy individuals behind them, can sue governments for the laws they pass, at private courts staffed by commercial attorneys. These proceedings take place in secret. Differing from national judiciaries, these bodies grant no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises operating from this country. They are open only to businesses operating from foreign soil.

Should an arbitration panel rules that a legislative action could harm the corporation’s projected profits, it has the power to grant compensation of vast sums, running into billions.

These awards represent not tangible damages but compensation the tribunal officials decide the company might otherwise have made. The administration might be compelled to abandon its policy. It becomes hesitant to enacting future policies in that area, worried about incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being brought, as firms take cues from each other, and private equity finance suits for a share of a share of the settlements. The outcome? Democratic sovereignty and democratic governance are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions taken by legislatures is that this stipulation has been incorporated – without public consent, and typically amid conditions of total confidentiality – inside bilateral investment treaties.

A Concrete Example: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the senior court. The justice ruled that plans to dig the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The incoming administration later cancelled the licence the Tories had issued. Currently, this victory faces being overturned by an foreign court accountable to only the corporations petitioning it.

During August, a company whose final controllers reside in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was set up to consider the case.

The company is suing the UK for the money it would have generated if the mine had received permission to proceed. We have no idea how much this sum represents. Which individual is representing it challenging the UK administration? An elected representative, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state passes a law, the high court supports it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coalmine case was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case at present, but it is highly possible that he will utilise the tribunal to contest the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has started suing Luxembourg for this reason, seeking $16bn: an amount representing half state's yearly income. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts contend that the EU’s procrastination in using frozen oligarchs' funds as security for its loan to Ukraine stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, secretive influence over sovereign states could be blocking the finance Ukraine desperately needs.

Misleading Claims and Mounting Threats

Politicians promised that these events could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all these agreements, declared: “Britain has agreed to trade agreement upon trade deal and there has never been a issue in the past.” An expert on this issue labelled critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies begin to understand the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were met with widespread derision.

That threat has now materialised. This year, energy and extraction companies have filed a unprecedented number of claims against nations rich and poor, contesting – as in the case of the Whitehaven project – state efforts to halt climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP