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How do you reckon our system of government operates? Maybe along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills become law. Legislation is upheld by the courts. That's it. Well, that used to be how it once functioned. Those days are over.

The Rise of Secret Courts

Nowadays, international firms, or the wealthy individuals who own them, can sue governments for the laws they pass, at private courts staffed by business advocates. The cases are conducted in secret. Unlike our courts, these bodies grant no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, including companies headquartered in this country. Access is granted solely for businesses operating from foreign soil.

Should an arbitration panel finds that a law or policy might diminish the corporation’s expected profits, it can award damages of hundreds of millions, even billions.

This compensation are based not on real financial harm but money the tribunal officials conclude the company might otherwise have made. The administration may have to drop the legislation. It becomes discouraged from introducing similar legislation in that area, due to the risk of facing litigation.

A System Spiralling Out of Control

Historically high figures of disputes are being initiated, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The consequence? Democratic sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the rulings made by legislatures is that this clause has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – into international trade agreements.

A Specific Instance: The UK Coal Mine

A year ago, activists won a great victory at the High Court. The judge found that plans to dig the first deep coalmine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have no consequence on our carbon budgets. The Labour government then withdrew the licence the previous administration had approved. Currently, this legal outcome could be compromised by an offshore tribunal answering to no one but the entities bringing the case.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands filed a lawsuit against the UK government. The previous week a tribunal in the United States was established to adjudicate on it.

This firm is suing the UK for the profits it would have generated if the mine had been permitted to go ahead. Citizens have no idea how much this might be. Which individual is representing it against the state? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot the MP. The government makes a decision, the national judiciary supports it, then a foreign company challenges it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Case

Concurrently that the tribunal on the mining lawsuit was established, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case at present, but it is highly possible that he may employ the arbitration process to challenge the sanctions the UK enacted against him after the war in Ukraine. He has previously initiated proceedings against a small nation with similar intent, seeking $16bn: an amount representing half state's yearly budget. Among the counsel on his side? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

Empty Promises and Growing Threats

Politicians promised that these events were not possible. Previously, a former prime minister, championing the biggest and most dangerous of all such treaties, declared: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An expert on this issue described campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “once firms grasp the authority they’ve been granted, they will turn their attention from the poorer states to the strong ones” were greeted by scepticism.

That prediction has come to pass. Recently, fossil fuel and extraction companies have lodged a record number of cases against nations both wealthy and developing, contesting – like the example of the UK mine – official measures to prevent environmental catastrophe. Companies have to date won vast sums via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP