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What is your reckon our democratic process functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Statutes are enforced by the courts. End of story. However, that used to be how it once functioned. No longer.

The Advent of Secret Tribunals

Today, international firms, or the wealthy individuals behind them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals staffed by commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even enterprises operating from this country. The door is open solely for entities operating from foreign soil.

If a tribunal finds that a legislative action might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These awards are based not on real financial harm but funds the arbitrators determine the company could potentially have made. The government could be forced to abandon its policy. It will be discouraged from introducing similar legislation in that area, worried about facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being filed, as firms take cues from each other, and private equity finance suits in return for a cut of the awards. The outcome? National sovereignty and democratic governance are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the choices enacted by elected bodies is that this provision has been incorporated – without democratic mandate, and frequently under conditions of total confidentiality – into trade treaties.

A Real-World Example: The UK Coal Mine

Last year, activists won a great victory at the High Court. The presiding officer ruled that schemes to excavate the first new deep coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The incoming administration subsequently revoked the licence the previous administration had approved. Now, this victory is under threat by an secret arbitration panel accountable to only the companies filing the suit.

During August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. Recently a tribunal in the US capital was convened to adjudicate on it.

The company is suing the UK for the money it might have made if the mine had been allowed to go ahead. The public has no idea how much this might be. Who is representing it in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a foreign company contests it through an undemocratic arbitration panel, and a elected official works for its behalf.

An Oligarch's Lawsuit

On the same day that the court on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case at present, but it seems likely that he will utilise the ISDS mechanism to fight the penalties the UK enacted against him after the Russian aggression. He has already filed a claim against another European state on these grounds, claiming a colossal sum: equivalent to half of government’s annual revenue. Among the lawyers acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in leveraging immobilised state funds as security for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

Misleading Claims and Mounting Costs

Politicians promised that these scenarios could not occur. Years ago, a government leader, championing the most significant and hazardous of all such treaties, stated: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” An adviser on this matter labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations start to realise the power they now possess, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with scepticism.

That prediction is now a reality. In the current period, oil and gas and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP