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How do you understand our democratic process works? Perhaps similar to this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Well, that’s how it once functioned. Those days are over.

The Rise of Secret Tribunals

In the modern era, foreign corporations, along with the oligarchs that control them, are able to litigate against nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. The cases are held in secret. Unlike our courts, these panels grant no opportunity to appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even enterprises operating from this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel determines that a legislative action could harm the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

These awards constitute not actual losses but compensation the panel members decide the company could potentially have made. The government might be compelled to abandon its policy. It will be deterred from enacting future policies of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being initiated, as firms observe each other, and hedge funds finance suits in exchange for a cut of the awards. The outcome? National sovereignty and democracy are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the rulings taken by parliaments is that this clause has been written – without democratic mandate, and often in an atmosphere of total confidentiality – inside bilateral investment treaties.

A Concrete Case: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The justice determined that schemes to excavate the first major coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no consequence on national carbon targets. The Labour government subsequently revoked the permission the Tories had approved. Currently, this legal outcome is under threat by an secret arbitration panel reporting to only the companies bringing the case.

In August, a company whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. Last week a dispute settlement body in the United States was convened to adjudicate on it.

This firm is litigating against the UK for the money it could have earned if the mine had been permitted to proceed. The public has no clear indication how much this could amount to. What legal team is representing it challenging the state? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The state passes a law, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a elected official works for its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case so far, but it is highly possible that he will utilise the arbitration process to contest the penalties the UK levied against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation with similar intent, demanding $16bn: equivalent to half of government’s annual revenue. Among the lawyers acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars believe that the EU’s hesitation in using frozen Russian assets as guarantee for its financial support package arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations could be blocking the funds Ukraine critically depends on.

Misleading Claims and Growing Threats

Politicians promised that these scenarios wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An expert on this issue labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations had to worry about these lawsuits. Warnings that “as corporations grasp the authority they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with scepticism.

That threat has come to pass. Recently, oil and gas and resource corporations have initiated a unprecedented number of claims against nations both wealthy and developing, contesting – as in the case of the UK mine – state efforts to stop global warming. Firms have thus far won $114bn via ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP