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How do you reckon our democratic process operates? Maybe something like this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that was how it operated in the past. Not anymore.

The Advent of Shadow Arbitration Panels

Today, international firms, along with the wealthy individuals that control them, can sue governments for the policies they pass, at offshore tribunals composed of business advocates. These proceedings are conducted away from public scrutiny. Unlike our courts, these tribunals grant no avenue for appeal or legal review. You or I are unable to file a case to them, nor can our government, or even companies headquartered in this country. Access is granted only to businesses based overseas.

Should an arbitration panel finds that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

This compensation are based not on real financial harm but compensation the arbitrators decide the company could potentially have made. The state could be forced to rescind the measure. It is deterred from passing future laws of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being filed, as corporations learn from each other, and hedge funds bankroll lawsuits in exchange for a portion of the takings. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the rulings made by elected bodies is that this clause has been inserted – without public consent, and often in conditions of total confidentiality – within bilateral investment treaties.

A Real-World Case: The UK Coalmine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The justice determined that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine could have no consequence on our carbon budgets. The new government then withdrew the licence the previous administration had issued. Now, this success faces being overturned by an offshore tribunal accountable to exclusively the companies petitioning it.

Last August, a firm whose beneficial owners reside in the Cayman Islands filed a lawsuit versus the UK government. The previous week a arbitration panel in the United States was established to consider the case.

The claimant is litigating against the UK for the money it might have made if the mine had been allowed to commence operations. Citizens have no idea how much this sum represents. Who is representing it in opposition to the UK administration? A member of parliament, and former attorney-general in the Conservative government, that great patriot the MP. The state passes a law, the domestic court validates it, then a foreign company disputes it through an secretive private court, and a member of our parliament represents its behalf.

A Sanctions Challenge

On the same day that the court on the coalmine case was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case so far, but it appears probable that he may employ the tribunal to fight the penalties the UK enacted against him subsequent to the Russian aggression. He has filed a claim against Luxembourg with similar intent, claiming a colossal sum: half that state's annual revenue. Among the legal team on his side? Cherie Blair, wife of the former British prime minister.

Legal experts contend that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Growing Costs

The public was told that such things were not possible. Years ago, a government leader, advocating for the most significant and hazardous of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this topic accused activists of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “as corporations begin to understand the influence they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were met with widespread derision.

That warning is now a reality. This year, fossil fuel and mining firms have lodged a unprecedented number of suits against nations both wealthy and developing, challenging – similar to the Whitehaven project – official measures to halt environmental catastrophe. Firms have so far won vast sums via ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP