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What is your perceive our democratic process operates? It could be similar to this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills become law. Legislation is upheld by the courts. That's it. Yet, that used to be how it operated in the past. Those days are over.

The Advent of Secret Arbitration Panels

In the modern era, international firms, or the oligarchs that control them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held behind closed doors. Differing from national judiciaries, these bodies allow no right of appeal or judicial review. You or I are unable to file a case to them, just as our government, or even enterprises operating from this country. They are open only to businesses registered abroad.

Should an arbitration panel determines that a government measure might diminish the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, potentially billions.

These sums constitute not actual losses but compensation the panel members conclude the company might otherwise have made. The government may have to abandon its policy. It is hesitant to enacting future policies in that area, for fear of being sued.

A Process Running Rampant

Historically high figures of disputes are being filed, as firms take cues from each other, and private equity finance suits for a share of a portion of the settlements. The outcome? National sovereignty and democracy are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede national legislation and the rulings enacted by legislatures is that this clause has been written – absent public approval, and typically amid an atmosphere of extreme secrecy – into international trade agreements.

A Concrete Instance: The UK Coalmine

Twelve months ago, a conservation group secured a significant win at the senior court. The justice ruled that plans to open the first new deep coal mine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have no impact on climate commitments. The incoming administration subsequently revoked the licence the former government had granted. Now, this legal outcome could be compromised by an foreign court answering to only the corporations petitioning it.

During August, a corporate entity whose beneficial owners are based in the Cayman Islands lodged a claim versus the UK government. Last week a tribunal in Washington DC was established to consider the case.

The company is suing the UK for the profits it could have earned if the mine had been permitted to proceed. Citizens have no idea how much this could amount to. Which individual is representing it against the British government? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court validates it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the court on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know little of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has already initiated proceedings against Luxembourg for this reason, demanding $16bn: an amount representing half nation's yearly budget. Part of the legal team representing him there? Cherie Blair, spouse of the ex-UK leader.

International law scholars believe that the EU’s procrastination in utilising seized state funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the funds Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that such things wouldn’t happen. In 2014, a government leader, championing the most significant and hazardous of all these agreements, declared: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this issue described activists of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Cautionary notes that “when companies grasp the power they now possess, they will shift their focus from the poorer states to the developed economies” were met with scepticism.

That warning has come to pass. This year, energy and mining firms have filed a record number of suits against nations both wealthy and developing, contesting – similar to the Whitehaven project – official measures to prevent environmental catastrophe. Firms have thus far won $114bn through ISDS, of which fossil fuel companies have secured $84bn. That is equivalent to the combined GDP