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What is your understand our system of government operates? It could be similar to this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills pass into law. Legislation are enforced by the courts. End of story. Yet, that’s how it operated in the past. No longer.

The Advent of Secret Courts

In the modern era, international firms, or the wealthy individuals behind them, can sue governments for the policies they pass, at offshore tribunals made up of corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even companies headquartered in this country. They are open only to businesses based overseas.

Should an arbitration panel finds that a law or policy might diminish the corporation’s expected profits, it may order compensation of vast sums, potentially billions.

These sums are based not on real financial harm but funds the tribunal officials conclude the company would perhaps have made. The state may have to abandon its policy. It becomes deterred from passing future laws in that area, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations observe each other, and private equity fund legal actions in exchange for a portion of the takings. The consequence? Democratic sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions taken by parliaments is that this clause has been inserted – absent public approval, and often in a climate of profound opacity – within trade treaties.

A Specific Example: The Cumbrian Coalmine

Last year, environmental campaigners won a great victory at the High Court. The justice determined that plans to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine could have zero effect on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had approved. Currently, this victory is under threat by an offshore tribunal answering to only the corporations filing the suit.

During August, a company whose beneficial owners reside in the Cayman Islands filed a lawsuit versus the UK government. Last week a arbitration panel in the United States was set up to consider the case.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have little idea how much this could amount to. Who is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a foreign company disputes it through an secretive private court, and a sitting MP acts on its behalf.

The Russian Challenge

On the same day that the tribunal 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, Mikhail Fridman. We know scarce of the case to date, but it appears probable that he may employ the ISDS mechanism to contest the sanctions the UK enacted against him after the war in Ukraine. He has previously started suing another European state for this reason, claiming a colossal sum: half that government’s yearly budget. Part of the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists believe that the EU’s delay in utilising seized oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Threats

The public was told that such things wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, told us: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this issue described campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “when companies start to realise the power they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were greeted by widespread derision.

That warning is now a reality. In the current period, oil and gas and resource corporations have filed a unprecedented number of suits against nations both wealthy and developing, challenging – like the example of the Whitehaven project – state efforts to prevent global warming. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP