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What is your perceive our system of government functions? It could be similar to this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. End of story. Yet, that used to be how it used to work. No longer.

The Emergence of Secret Courts

Today, international firms, or the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at private courts composed of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these bodies grant no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, including businesses headquartered in this country. They are open solely for corporations registered abroad.

If a tribunal finds that a government measure could harm the corporation’s expected profits, it can award damages of vast sums, potentially billions.

These sums constitute not actual losses but funds the tribunal officials decide the company might otherwise have made. The administration might be compelled to rescind the measure. It will be discouraged from enacting future policies along the same lines, for fear of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms learn from each other, and investment funds fund legal actions in return for a share of the settlements. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the rulings made by parliaments is that this stipulation has been written – without democratic mandate, and typically amid an atmosphere of profound opacity – into trade treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, activists won a great victory at the high court. The judge ruled that plans to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The new government then withdrew the licence the former government had issued. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to no one but the entities petitioning it.

During August, a corporate entity whose final controllers are located in the Cayman Islands initiated proceedings challenging the UK government. Recently a arbitration panel in the US capital was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had received permission to commence operations. Citizens have no clear indication how much this sum represents. What legal team is serving as its counsel against the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a overseas corporation disputes it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case so far, but it is highly possible that he may employ the tribunal to fight the penalties the UK enacted against him following the war in Ukraine. He has initiated proceedings against a small nation on these grounds, seeking $16bn: half that government’s yearly budget. Included in the counsel representing him there? Cherie Blair, spouse of the previous PM.

International law scholars argue that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a senior politician, championing the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and we have never seen a problem in the past.” A consultant on this issue accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies start to realise the power they now possess, they will shift their focus from the poorer states to the strong ones” were dismissed with general mockery.

That threat has come to pass. In the current period, energy and extraction companies have lodged a record number of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Corporations have to date won vast sums through ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP