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How do you reckon our system of government works? Perhaps similar to this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. Well, that used to be how it once functioned. Not anymore.

The Emergence of Secret Courts

Nowadays, international firms, along with the oligarchs behind them, are able to litigate against governments for the policies they pass, at private courts composed of business advocates. These proceedings are conducted in secret. Differing from national judiciaries, these tribunals grant no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies operating from this country. They are open exclusively to corporations based overseas.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it can award compensation of hundreds of millions, potentially billions.

This compensation are based not on actual losses but money the panel members decide the company might otherwise have made. The administration might be compelled to rescind the measure. It becomes deterred from enacting future policies of a similar nature, due to the risk of being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as companies take cues from each other, and investment funds fund legal actions in return for a cut of the awards. The result? Democratic sovereignty and democratic governance are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the decisions taken by elected bodies is that this clause has been written – without public consent, and typically amid an atmosphere of profound opacity – inside trade treaties.

A Specific Example: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The judge determined that plans to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government subsequently revoked the permission the Tories had approved. Currently, this victory could be compromised by an foreign court answering to exclusively the corporations petitioning it.

Last August, a firm whose ultimate owners are based in the offshore financial centre lodged a claim against the UK government. Last week a tribunal in the United States was set up to adjudicate on it.

The claimant is suing the UK for the profits it might have made if the mine had been permitted to commence operations. Citizens have no idea how much this might be. Who is representing it in opposition to the state? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a overseas corporation contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case at present, but it appears probable that he’ll use the arbitration process to challenge the sanctions the UK enacted against him after the war in Ukraine. He has initiated proceedings against a small nation for this reason, demanding $16bn: an amount representing half state's yearly budget. Included in the legal team representing him there? Cherie Blair, spouse of the former British prime minister.

Legal experts contend that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine critically depends on.

Empty Promises and Mounting Costs

Politicians promised that such things were not possible. Previously, a government leader, promoting the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” A consultant on this matter accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by such legal actions. Predictions that “once firms start to realise the power they’ve been granted, they will turn their attention from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction is now a reality. This year, energy and mining firms have filed a unprecedented number of cases against nations rich and poor, contesting – as in the case of the UK mine – state efforts to halt environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured $84bn. That equates to the combined GDP