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How do you reckon our political system works? Maybe similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills become law. Legislation are enforced by the courts. Simple as that. However, that’s how it used to work. No longer.

The Advent of Secret Tribunals

Today, international firms, and the billionaires who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels made up of commercial attorneys. The cases are conducted away from public scrutiny. Unlike our courts, these panels provide no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open exclusively to entities based overseas.

Should an arbitration panel rules that a law or policy could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These sums constitute not actual losses but compensation the panel members determine the company would perhaps have made. The administration could be forced to drop the legislation. It will be discouraged from passing future laws in that area, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Historically high figures of legal actions are being initiated, as corporations observe each other, and hedge funds fund legal actions in return for a cut of the awards. The outcome? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the choices made by parliaments is that this clause has been inserted – absent public approval, and frequently under conditions of profound opacity – inside trade treaties.

A Real-World Instance: The Whitehaven Coalmine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The judge ruled that plans to open the first deep coalmine in the UK for a generation, in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on national carbon targets. The new government later cancelled the consent the former government had granted. Today, this victory could be compromised by an foreign court reporting to no one but the companies bringing the case.

In August, a firm whose beneficial owners are located in the Cayman Islands initiated proceedings challenging the UK government. Recently a arbitration panel in the United States was set up to consider the case.

The claimant is suing the UK for the money it would have generated if the mine had been allowed to commence operations. Citizens have no idea how much this sum represents. Who is serving as its counsel challenging the state? An elected representative, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The government passes a law, the high court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Concurrently that the court on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case at present, but it is highly possible that he’ll use the tribunal to contest the sanctions the UK levied against him after the war in Ukraine. He has previously started suing a small nation with similar intent, seeking $16bn: half that government’s yearly income. Part of the counsel on his side? a prominent lawyer, wife of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised state funds as guarantee for its financial support package stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these scenarios wouldn’t happen. In 2014, a government leader, championing the largest and riskiest of all investment pacts, declared: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this topic described critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That warning is now a reality. This year, energy and mining firms have initiated a record number of claims against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained the majority. That equates to the combined GDP