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What is your understand our system of government works? Perhaps something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. End of story. Well, that’s how it operated in the past. Those days are over.

The Rise of Secret Tribunals

Today, foreign corporations, and the billionaires behind them, are able to litigate against governments for the regulations they pass, at private courts composed of corporate lawyers. These proceedings are conducted in secret. In contrast to domestic courts, these bodies grant no opportunity to appeal or judicial review. You or I cannot take a case to them, and neither can our government, including companies headquartered in this country. They are open only to corporations based overseas.

When a secret court determines that a legislative action may compromise the corporation’s anticipated profits, it can award financial penalties of vast sums, potentially billions.

These awards constitute not tangible damages but compensation the arbitrators conclude the company would perhaps have made. The state could be forced to drop the legislation. It will be deterred from introducing similar legislation in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as corporations learn from each other, and investment funds finance suits in return for a portion of the takings. The consequence? National sovereignty and popular rule are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the decisions enacted by legislatures is that this clause has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – inside international trade agreements.

A Concrete Instance: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The presiding officer determined that proposals to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine could have no consequence on climate commitments. The incoming administration subsequently revoked the consent the previous administration had issued. Currently, this success faces being overturned by an secret arbitration panel accountable to no one but the entities filing the suit.

Last August, a firm whose final controllers are based in the Cayman Islands lodged a claim versus the UK government. Recently a arbitration panel in Washington DC was set up to hear it.

This firm is suing the UK for the profits it might have made if the mine had received permission to go ahead. Citizens have no idea how much this sum represents. What legal team is acting on its behalf in opposition to the state? A member of parliament, and former attorney-general in the Conservative government, that great patriot the MP. The government makes a decision, the domestic court supports it, then a foreign company disputes it through an secretive arbitration panel, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the panel on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case to date, but it seems likely that he may employ the ISDS mechanism to contest the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously initiated proceedings against Luxembourg for this reason, demanding $16bn: half that state's annual revenue. Included in the counsel representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists contend that the EU’s hesitation in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that such things could not occur. Years ago, a government leader, promoting the most significant and hazardous of all these agreements, stated: “The UK has signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this topic described critics of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about ISDS claims. Predictions that “when companies begin to understand the authority they’ve been granted, they will turn their attention from the weak nations to the developed economies” were greeted by general mockery.

That prediction has come to pass. In the current period, fossil fuel and mining firms have initiated a record number of claims against nations across the economic spectrum, contesting – as in the case of the UK mine – official measures to prevent climate breakdown. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP