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How do you perceive our system of government works? Perhaps something like this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. Yet, that used to be how it used to work. Those days are over.

The Rise of Secret Courts

Nowadays, international firms, along with the billionaires who own them, can sue nation states for the policies they pass, at offshore tribunals composed of business advocates. The cases are held away from public scrutiny. Differing from national judiciaries, these bodies provide no right of appeal or legal review. You or I are barred from bringing a case to them, just as our government, including companies based in this country. They are open only to entities based overseas.

Should an arbitration panel rules that a legislative action may compromise the corporation’s anticipated profits, it may order compensation of vast sums, even billions.

These awards represent not real financial harm but funds the tribunal officials decide the company might otherwise have made. The administration might be compelled to abandon its policy. It becomes deterred from passing future laws of a similar nature, worried about facing litigation.

A System Running Rampant

Historically high figures of disputes are being brought, as firms learn from each other, and private equity finance suits for a share of a share of the takings. The result? Democratic sovereignty and democracy are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the rulings enacted by parliaments is that this stipulation has been incorporated – without democratic mandate, and often in conditions of total confidentiality – within international trade agreements.

A Specific Example: The Cumbrian Coal Mine

A year ago, activists secured a significant win at the high court. The judge determined that proposals to dig the first major coal mine in the UK for three decades, in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The incoming administration subsequently revoked the consent the previous administration had approved. Now, this success could be compromised by an offshore tribunal accountable to only the entities bringing the case.

During August, a firm whose ultimate owners are based in the offshore financial centre filed a lawsuit against the UK government. Last week a dispute settlement body in the US capital was convened to consider the case.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. Citizens have no idea how much this could amount to. Which individual is serving as its counsel challenging the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP represents its behalf.

The Russian Case

Concurrently that the court on the coalmine case was convened, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case to date, but it is highly possible that he may employ the arbitration process to fight the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against another European state on these grounds, claiming $16bn: half that nation's annual revenue. Part of the legal team representing him there? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in utilising seized state funds as guarantee for its financial support package is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that these scenarios wouldn’t happen. Previously, a government leader, championing the biggest and most dangerous of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and there has never been a problem in the past.” A consultant on this matter described activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about such legal actions. Cautionary notes that “once firms start to realise the power bestowed upon them, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That threat has come to pass. This year, energy and resource corporations have initiated a record number of suits against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – official measures to stop global warming. Companies have so far won vast sums through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP