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How do you perceive our democratic process functions? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that’s how it used to work. Those days are over.

The Rise of Secret Arbitration Panels

Nowadays, international firms, along with the oligarchs who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels staffed by business advocates. These proceedings are held away from public scrutiny. In contrast to domestic courts, these bodies provide no avenue for appeal or legal review. You or I are barred from bringing a case to them, just as our government, including businesses headquartered in this country. Access is granted exclusively to businesses based overseas.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it has the power to grant financial penalties of vast sums, potentially billions.

These awards are based not on real financial harm but compensation the tribunal officials conclude the company could potentially have made. The state may have to drop the legislation. It will be deterred from enacting future policies in that area, for fear of facing litigation.

A System Growing Exponentially

Unprecedented levels of cases are being initiated, as firms learn from each other, and hedge funds bankroll lawsuits for a share of a portion of the settlements. The result? National sovereignty and popular rule are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the decisions made by legislatures is that this clause has been written – without public consent, and frequently under an atmosphere of extreme secrecy – inside bilateral investment treaties.

A Specific Instance: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The presiding officer found that proposals to open the first major coal mine in the UK for a generation, in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the previous administration had issued. Today, this legal outcome is under threat by an secret arbitration panel accountable to no one but the companies bringing the case.

In August, a corporate entity whose ultimate owners are located in the offshore financial centre initiated proceedings versus the UK government. Last week a tribunal in Washington DC was convened to consider the case.

The company is litigating against the UK for the money it would have generated if the mine had received permission to go ahead. We have no idea how much this might be. Who is serving as its counsel in opposition to the state? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The government makes a decision, the national judiciary supports it, then a international entity contests it through an undemocratic private court, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coalmine case was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it seems likely that he may employ the tribunal to fight the sanctions the UK enacted against him subsequent to the Russian aggression. He has started suing another European state on these grounds, demanding $16bn: an amount representing half government’s yearly budget. Part of the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts argue that the EU’s delay in using frozen oligarchs' funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments may be obstructing the money Ukraine critically depends on.

Misleading Claims and Mounting Risks

We were assured that these events were not possible. Previously, a government leader, championing the most significant and hazardous of all these agreements, stated: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this issue described campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations needed to fear these lawsuits. Predictions that “when companies grasp the authority they’ve been granted, they will turn their attention from the poorer states to the developed economies” were greeted by scepticism.

That warning is now a reality. In the current period, energy and extraction companies have lodged a record number of cases against nations both wealthy and developing, contesting – as in the case of the UK mine – official measures to halt environmental catastrophe. Companies have so far won vast sums via ISDS, of which oil majors have obtained the majority. That represents the combined GDP