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How do you perceive our democratic process functions? Perhaps something like this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Statutes is upheld by the courts. That's it. Well, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals behind them, have the power to sue governments for the regulations they pass, at private courts made up of commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these panels grant no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses operating from this country. The door is open solely for entities based overseas.

If a tribunal rules that a government measure might diminish the corporation’s projected profits, it may order financial penalties of hundreds of millions, potentially billions.

These awards constitute not actual losses but funds the arbitrators conclude the company might otherwise have made. The state might be compelled to abandon its policy. It becomes hesitant to enacting future policies in that area, for fear of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of legal actions are being filed, as corporations learn from each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The result? Democratic sovereignty and democratic governance are now prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions made by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – into international trade agreements.

A Real-World Case: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer ruled that schemes to excavate the first new deep coal mine in the UK for three decades, in northwest England, were wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have zero effect on national carbon targets. The incoming administration then withdrew the permission the former government had granted. Currently, this success faces being overturned by an offshore tribunal accountable to exclusively the corporations filing the suit.

Last August, a corporate entity whose ultimate owners are located in the Cayman Islands lodged a claim challenging the UK government. The previous week a tribunal in Washington DC was convened to adjudicate on it.

The company is litigating against the UK for the profits it would have generated if the mine had been allowed to proceed. Citizens have no idea how much this might be. Who is representing it against the UK administration? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The government makes a decision, the high court upholds it, then a international entity disputes it through an secretive private court, and a sitting MP acts on its behalf.

A Sanctions Challenge

Concurrently that the court on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case so far, but it seems likely that he will utilise the tribunal to fight the penalties the UK levied against him subsequent to the Russian aggression. He has already started suing Luxembourg on these grounds, claiming a colossal sum: half that state's annual revenue. Among the lawyers on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts contend that the EU’s delay in using frozen state funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

Empty Promises and Mounting Risks

Politicians promised that such things wouldn’t happen. In 2014, a government leader, championing the most significant and hazardous of all such treaties, declared: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An expert on this issue labelled campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by such legal actions. Warnings that “when companies begin to understand the power bestowed upon them, they will shift their focus from the weak nations to the developed economies” were met with widespread derision.

That prediction has now materialised. This year, oil and gas and resource corporations have filed a unprecedented number of suits against nations both wealthy and developing, contesting – like the example of the UK mine – state efforts to prevent global warming. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP