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How do you reckon our democratic process works? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. End of story. However, that used to be how it operated in the past. Not anymore.

The Advent of Secret Tribunals

Nowadays, foreign corporations, or the wealthy individuals behind them, have the power to sue elected administrations for the laws they pass, at private courts made up of business advocates. The cases are conducted in secret. Differing from national judiciaries, these panels allow no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, including companies based in this country. The door is open exclusively to businesses operating from foreign soil.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, even billions.

These sums are based not on real financial harm but compensation the arbitrators decide the company might otherwise have made. The administration might be compelled to drop the legislation. It is deterred from enacting future policies along the same lines, for fear of being sued.

A System Growing Exponentially

Record numbers of cases are being brought, as companies take cues from each other, and hedge funds finance suits in return for a portion of the awards. The result? Democratic sovereignty and democratic governance are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the rulings enacted by elected bodies is that this provision has been inserted – without democratic mandate, and frequently under conditions of total confidentiality – into bilateral investment treaties.

A Specific Example: The UK Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The judge determined that proposals to dig the first major coal mine in the UK for a generation, in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine could have zero effect on national carbon targets. The new government subsequently revoked the licence the previous administration had issued. Currently, this victory faces being overturned by an foreign court reporting to exclusively the corporations bringing the case.

Last August, a company whose final controllers are based in the Cayman Islands initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was set up to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this sum represents. Which individual is serving as its counsel in opposition to the UK administration? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the domestic court supports it, then a international entity contests it through an undemocratic private court, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Concurrently that the court on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he may employ the arbitration process to fight the restrictions the UK enacted against him following the Russian aggression. He has already initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: equivalent to half of state's yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations may be obstructing the finance Ukraine desperately needs.

False Assurances and Escalating Threats

We were assured that these events wouldn’t happen. Years ago, a former prime minister, advocating for the largest and riskiest of all such treaties, declared: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An adviser on this topic labelled activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “as corporations start to realise the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with widespread derision.

That warning is now a reality. In the current period, energy and mining firms have lodged a record number of cases against nations both wealthy and developing, contesting – similar to the UK mine – government attempts to stop environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP