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How do you reckon our system of government functions? Maybe something like this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Emergence of Secret Courts

Today, international firms, and the billionaires who own them, have the power to sue nation states for the regulations they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted in secret. Differing from national judiciaries, these bodies allow no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even companies operating from this country. Access is granted exclusively to corporations registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s anticipated profits, it can award damages of vast sums, even billions.

This compensation are based not on real financial harm but compensation the arbitrators conclude the company might otherwise have made. The administration may have to abandon its policy. It will be deterred from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of legal actions are being filed, as corporations learn from each other, and private equity fund legal actions in return for a cut of the takings. The outcome? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the rulings taken by elected bodies is that this clause has been inserted – without democratic mandate, and often in a climate of profound opacity – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The judge ruled that plans to open the first major coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine could have no impact on climate commitments. The new government subsequently revoked the licence the previous administration had issued. Now, this victory could be compromised by an secret arbitration panel reporting to exclusively the companies bringing the case.

Last August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim challenging the UK government. Recently a tribunal in the US capital was convened to consider the case.

The claimant is litigating against the UK for the revenue it would have generated if the mine had been permitted to commence operations. We have no idea how much this might be. Which individual is serving as its counsel against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government passes a law, the national judiciary validates it, then a international entity contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coal mine dispute was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case at present, but it is highly possible that he will utilise the arbitration process to challenge the sanctions the UK enacted against him following the Russian aggression. He has previously initiated proceedings against a small nation on these grounds, seeking $16bn: half that government’s annual revenue. Included in the legal team representing him there? a prominent lawyer, married to the ex-UK leader.

Legal experts argue that the EU’s procrastination in using frozen state funds as guarantee for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations could be blocking the money Ukraine desperately needs.

Empty Promises and Escalating Costs

The public was told that these scenarios wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all investment pacts, declared: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this issue labelled activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “once firms start to realise the power they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction has now materialised. Recently, oil and gas and mining firms have lodged a record number of cases against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Companies have to date won vast sums through ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP