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Can you reckon our system of government functions? Maybe something like this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills become law. Statutes is maintained by the courts. That's it. Well, that used to be how it once functioned. Those days are over.

The Advent of Secret Tribunals

Today, international firms, or the oligarchs that control them, are able to litigate against nation states for the policies they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted in secret. Differing from national judiciaries, these panels grant no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even enterprises based in this country. They are open only to entities based overseas.

If a tribunal rules that a legislative action could harm the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but compensation the tribunal officials determine the company could potentially have made. The government could be forced to abandon its policy. It will be discouraged from enacting future policies of a similar nature, worried about incurring a lawsuit.

A System Running Rampant

Historically high figures of cases are being initiated, as firms take cues from each other, and hedge funds finance suits for a share of a portion of the awards. The outcome? National sovereignty and democracy are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the rulings enacted by legislatures is that this clause has been written – without democratic mandate, and often in a climate of extreme secrecy – within bilateral investment treaties.

A Specific Case: The Cumbrian Coal Mine

Last year, activists secured a significant win at the high court. The justice determined that plans to excavate the first major coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on national carbon targets. The new government then withdrew the licence the former government had approved. Now, this success could be compromised by an offshore tribunal reporting to no one but the companies filing the suit.

During August, a firm whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. Recently a tribunal in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been allowed to proceed. We have no clear indication how much this might be. Who is representing it challenging the state? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The government makes a decision, the high court validates it, then a international entity disputes it through an secretive arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Case

Simultaneously that the panel on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case so far, but it seems likely that he’ll use the arbitration process to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg for this reason, demanding a colossal sum: an amount representing half state's yearly income. Included in the lawyers representing him there? a prominent lawyer, wife of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments may be obstructing the funds Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that such things were not possible. In 2014, a former prime minister, championing the biggest and most dangerous of all such treaties, declared: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An expert on this issue labelled critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries had to worry about such legal actions. Cautionary notes that “once firms begin to understand the influence they now possess, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That prediction has now materialised. This year, energy and extraction companies have initiated a unprecedented number of suits against nations both wealthy and developing, challenging – as in the case of the UK mine – official measures to stop environmental catastrophe. Corporations have to date won $114bn via ISDS, of which oil majors have secured the majority. That equates to the combined GDP