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How do you understand our political system operates? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. That's it. Well, that used to be how it used to work. Those days are over.

The Rise of Secret Courts

Today, foreign corporations, and the wealthy individuals that control them, have the power to sue nation states for the policies they pass, at private courts made up of corporate lawyers. The cases take place in secret. In contrast to domestic courts, these bodies grant no opportunity to appeal or legal review. You or I are barred from bringing a case to them, nor can our government, including companies operating from this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel determines that a legislative action may compromise the corporation’s expected profits, it can award damages of hundreds of millions of pounds, even billions.

This compensation represent not real financial harm but funds the tribunal officials conclude the company would perhaps have made. The government could be forced to abandon its policy. It becomes discouraged from enacting future policies in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and hedge funds fund legal actions in exchange for a cut of the settlements. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the decisions made by legislatures is that this clause has been written – without public consent, and typically amid conditions of extreme secrecy – into international trade agreements.

A Specific Example: The Whitehaven Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The justice determined that plans to open the first deep coalmine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on climate commitments. The Labour government later cancelled the consent the previous administration had issued. Now, this success is under threat by an offshore tribunal reporting to exclusively the companies filing the suit.

During August, a company whose final controllers are based in the offshore financial centre initiated proceedings against the UK government. The previous week a arbitration panel in the United States was established to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had been allowed to commence operations. We have no idea how much this might be. Who is acting on its behalf challenging the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the high court supports it, then a foreign company challenges it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case to date, but it appears probable that he may employ the arbitration process to contest the sanctions the UK imposed on him after the invasion of Ukraine. He has already initiated proceedings against Luxembourg with similar intent, seeking a colossal sum: equivalent to half of nation's yearly budget. Part of the legal team acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists argue that the EU’s hesitation in using frozen state funds as collateral for its financial support package is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the money Ukraine desperately needs.

Empty Promises and Growing Costs

The public was told that these events wouldn’t happen. Years ago, a government leader, promoting the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty upon trade deal and there has never been a problem in the past.” An expert on this topic described activists of “alarmism … in reality, ISDS does not affect the UK much”. The overall message seemed to be that solely developing countries had to worry about these lawsuits. Warnings that “once firms grasp the authority they now possess, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That threat has now materialised. This year, oil and gas and extraction companies have initiated a record number of cases against nations rich and poor, challenging – as in the case of the UK mine – official measures to stop global warming. Corporations have to date won $114bn by using ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP