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How do you perceive our democratic process functions? It could be similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. That's it. However, that used to be how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals who own them, have the power to sue governments for the policies they pass, at offshore tribunals staffed by business advocates. The cases take place in secret. Unlike our courts, these bodies grant no opportunity to appeal or legal review. The general public cannot take a case to them, and neither can our government, or even enterprises operating from this country. They are open exclusively to businesses based overseas.

Should an arbitration panel rules that a legislative action might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These sums represent not real financial harm but money the tribunal officials conclude the company would perhaps have made. The administration could be forced to abandon its policy. It will be discouraged from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being initiated, as companies observe each other, and investment funds fund legal actions in exchange for a share of the awards. The consequence? Sovereignty and democratic governance are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the decisions made by parliaments is that this clause has been written – without democratic mandate, and often in a climate of total confidentiality – within trade treaties.

A Specific Example: The UK Coalmine

Last year, activists secured a significant win at the high court. The presiding officer found that plans to excavate the first major coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have no impact on climate commitments. The new government later cancelled the consent the Tories had approved. Currently, this victory faces being overturned by an secret arbitration panel accountable to exclusively the companies filing the suit.

Last August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings versus the UK government. The previous week a arbitration panel in Washington DC was established to hear it.

This firm is seeking compensation from the UK for the money it might have made 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 in opposition to the British government? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the high court validates it, then a international entity disputes it through an undemocratic private court, and a member of our parliament works for its behalf.

The Russian Challenge

Simultaneously that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case so far, but it appears probable that he’ll use the tribunal to challenge the penalties the UK imposed on him subsequent to the Russian aggression. He has filed a claim against another European state for this reason, demanding sixteen billion dollars: equivalent to half of nation's annual revenue. Included in the lawyers on his side? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars believe that the EU’s hesitation in utilising seized state funds as security for its financial support package arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over sovereign states could be blocking the finance Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that these scenarios wouldn’t happen. In 2014, a government leader, championing the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” An expert on this issue described critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “once firms begin to understand the influence bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were dismissed with general mockery.

That prediction has now materialised. Recently, fossil fuel and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to stop global warming. Firms have so far won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP