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Can you reckon our system of government functions? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that used to be how it operated in the past. No longer.

The Rise of Secret Courts

Nowadays, overseas companies, and the billionaires that control them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held in secret. Unlike our courts, these bodies allow no right of appeal or legal review. The general public cannot take a case to them, and neither can our government, including businesses based in this country. They are open only to businesses registered abroad.

Should an arbitration panel rules that a law or policy might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

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

A System Growing Exponentially

Record numbers of disputes are being filed, as corporations observe each other, and private equity finance suits in exchange for a portion of the awards. The consequence? National sovereignty and democracy are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump a country's own laws and the rulings made by legislatures is that this provision has been inserted – absent public approval, and frequently under a climate of total confidentiality – inside trade treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the senior court. The judge determined that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have had no consequence on national carbon targets. The Labour government later cancelled the permission the former government had issued. Today, this victory could be compromised by an offshore tribunal answering to no one but the entities bringing the case.

During August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the United States was established to hear it.

This firm is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. Citizens have no clear indication how much this sum represents. What legal team is serving as its counsel in opposition to the state? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The government passes a law, the domestic court validates it, then a overseas corporation disputes it through an secretive private court, and a elected official works for its behalf.

An Oligarch's Challenge

On the same day that the tribunal 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, an oligarch. The public knows little of the case to date, but it appears probable that he will utilise the tribunal to fight the penalties the UK enacted against him following the war in Ukraine. He has filed a claim against a small nation on these grounds, claiming $16bn: equivalent to half of state's annual revenue. Included in the counsel on his side? a prominent lawyer, spouse of the ex-UK leader.

International law scholars contend that the EU’s procrastination in utilising seized state funds as collateral for its financial support package stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over sovereign states could be blocking the funds Ukraine urgently requires.

Empty Promises and Growing Costs

The public was told that these scenarios could not occur. Years ago, a former prime minister, championing the largest and riskiest of all these agreements, told us: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” An adviser on this matter accused campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies start to realise the influence bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were dismissed with widespread derision.

That warning is now a reality. Recently, energy and resource corporations have lodged a unprecedented number of suits against nations across the economic spectrum, contesting – similar to the UK mine – official measures to stop environmental catastrophe. Companies have so far won $114bn by using ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP