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How do you understand our democratic process functions? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills pass into law. The law is maintained by the courts. That's it. Well, that used to be how it operated in the past. No longer.

The Emergence of Secret Arbitration Panels

In the modern era, international firms, or the billionaires behind them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels staffed by business advocates. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no right of appeal or legal review. The general public are unable to file a case to them, nor can our government, or even companies operating from this country. They are open solely for entities operating from foreign soil.

Should an arbitration panel rules that a legislative action could harm the corporation’s projected profits, it may order damages of hundreds of millions, potentially billions.

This compensation constitute not tangible damages but money the arbitrators determine the company could potentially have made. The state might be compelled to rescind the measure. It will be deterred from passing future laws in that area, worried about being sued.

A System Growing Exponentially

Historically high figures of cases are being filed, as companies learn from each other, and private equity finance suits for a share of a portion of the settlements. The consequence? National sovereignty and popular rule are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the choices enacted by parliaments is that this stipulation has been written – without public consent, and frequently under a climate of total confidentiality – within bilateral investment treaties.

A Concrete Case: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The presiding officer found that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine could have no impact on climate commitments. The new government then withdrew the permission the previous administration had granted. Today, this legal outcome faces being overturned by an foreign court accountable to no one but the companies filing the suit.

In August, a corporate entity whose ultimate owners are located in the tax haven filed a lawsuit against the UK government. Last week a arbitration panel in the US capital was established to hear it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been allowed to proceed. We have little idea how much this could amount to. What legal team is representing it in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government enacts a policy, the national judiciary validates it, then a international entity disputes it through an unaccountable arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the mining lawsuit was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case to date, but it seems likely that he’ll use the arbitration process to challenge the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation with similar intent, claiming a colossal sum: equivalent to half of nation's yearly budget. Among the legal team representing him there? the wife of a former prime minister, married to the previous PM.

International law scholars contend that the EU’s procrastination in using frozen oligarchs' funds as security for its financial support package stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that these events were not possible. Years ago, a senior politician, advocating for the largest and riskiest of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has never been a issue in the past.” A consultant on this issue accused critics of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “once firms grasp the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That warning is now a reality. Recently, energy and extraction companies have filed a historic level of cases against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – official measures to prevent global warming. Firms have to date won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP