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Can you reckon our democratic process functions? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. That's it. Well, that was how it operated in the past. No longer.

The Emergence of Secret Courts

Today, overseas companies, and the billionaires who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of business advocates. The cases take place away from public scrutiny. Differing from national judiciaries, these panels allow no opportunity to appeal or legal review. You or I cannot take a case to them, just as our government, or even enterprises operating from this country. The door is open solely for entities registered abroad.

When a secret court determines that a government measure may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

These awards are based not on real financial harm but funds the tribunal officials decide the company could potentially have made. The state might be compelled to abandon its policy. It is discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Running Rampant

Unprecedented levels of disputes are being initiated, as companies take cues from each other, and private equity bankroll lawsuits in return for a portion of the settlements. The consequence? Democratic sovereignty and popular rule are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the choices enacted by elected bodies is that this clause has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – within international trade agreements.

A Concrete Example: The Cumbrian Coal Mine

A year ago, a conservation group secured a significant win at the senior court. The justice ruled that schemes to dig the first major coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine could have no impact on national carbon targets. The Labour government subsequently revoked the permission the former government had granted. Today, this success could be compromised by an secret arbitration panel answering to no one but the corporations filing the suit.

During August, a firm whose final controllers are located in the offshore financial centre initiated proceedings against the UK government. Last week a tribunal in Washington DC was convened to hear it.

This firm is litigating against the UK for the profits it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. What legal team is acting on its behalf in opposition to the state? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The administration passes a law, the domestic court validates it, then a foreign company challenges it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Case

On the same day that the tribunal on the coalmine case was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case so far, but it is highly possible that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him following the invasion of Ukraine. He has initiated proceedings against a small nation for this reason, seeking a colossal sum: equivalent to half of nation's yearly budget. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars contend that the EU’s hesitation in using frozen Russian assets as security for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over democratic administrations may be obstructing the money Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, championing the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter labelled campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “as corporations start to realise the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That threat is now a reality. Recently, energy and extraction companies have filed a historic level of cases against nations across the economic spectrum, challenging – like the example of the UK mine – state efforts to prevent global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP