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How do you perceive our democratic process functions? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. However, that’s how it operated in the past. No longer.

The Rise of Shadow Tribunals

Nowadays, overseas companies, or the oligarchs behind them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of commercial attorneys. The cases take place behind closed doors. Unlike our courts, these panels provide no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, including companies operating from this country. Access is granted solely for entities operating from foreign soil.

If a tribunal determines that a government measure could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions, even billions.

These awards are based not on real financial harm but compensation the arbitrators conclude the company would perhaps have made. The state might be compelled to rescind the measure. It becomes discouraged from introducing similar legislation along the same lines, due to the risk of facing litigation.

A System Spiralling Out of Control

Record numbers of disputes are being filed, as companies observe each other, and investment funds fund legal actions for a share of a cut of the settlements. The outcome? Sovereignty and democracy are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the rulings made by elected bodies is that this stipulation has been inserted – without public consent, and frequently under an atmosphere of profound opacity – inside trade treaties.

A Real-World Example: The UK Coalmine

Twelve months ago, activists secured a significant win at the senior court. The judge found that schemes to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The Labour government later cancelled the permission the former government had issued. Now, this victory could be compromised by an offshore tribunal reporting to only the entities filing the suit.

During August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The claimant is suing the UK for the money it could have earned if the mine had received permission to commence operations. We have no idea how much this sum represents. Who is serving as its counsel challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the high court validates it, then a overseas corporation challenges it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

On the same day that the panel on the coal mine dispute was established, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case to date, but it is highly possible that he’ll use the arbitration process to fight the penalties the UK levied against him subsequent to the Russian aggression. He has already filed a claim against another European state on these grounds, claiming $16bn: an amount representing half nation's yearly income. Among the lawyers acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

Legal experts contend that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its financial support package arises from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations may be obstructing the finance Ukraine critically depends on.

False Assurances and Escalating Risks

The public was told that such things were not possible. Previously, a former prime minister, championing the most significant and hazardous of all investment pacts, declared: “The UK has signed investment treaty after trade deal and there has not been a case in the past.” An expert on this matter labelled activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states needed to fear such legal actions. Predictions that “as corporations begin to understand the authority they now possess, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat has come to pass. Recently, oil and gas and resource corporations have filed a unprecedented number of suits against nations rich and poor, opposing – similar to the Whitehaven project – state efforts to prevent environmental catastrophe. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP