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Can you perceive our political system operates? Perhaps something like this. We elect MPs. They legislate on bills. If a majority is obtained, the bills become law. Statutes is maintained by the courts. Simple as that. Yet, that was how it once functioned. Those days are over.

The Emergence of Secret Courts

Today, foreign corporations, or the wealthy individuals who own them, can sue nation states for the policies they pass, at offshore tribunals made up of commercial attorneys. These proceedings are held in secret. Differing from national judiciaries, these panels allow no avenue for appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. Access is granted exclusively to businesses operating from foreign soil.

Should an arbitration panel rules that a legislative action may compromise the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, potentially billions.

This compensation are based not on tangible damages but money the panel members determine the company would perhaps have made. The state could be forced to abandon its policy. It will be hesitant to enacting future policies along the same lines, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as corporations learn from each other, and private equity bankroll lawsuits in return for a share of the awards. The consequence? Sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the choices enacted by elected bodies is that this provision has been incorporated – absent public approval, and frequently under conditions of total confidentiality – within international trade agreements.

A Concrete Example: The UK Coal Mine

Last year, a conservation group secured a significant win at the high court. The presiding officer ruled that schemes to dig the first major coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The new government then withdrew the permission the Tories had approved. Currently, this victory is under threat by an secret arbitration panel reporting to no one but the entities filing the suit.

During August, a company whose beneficial owners reside in the tax haven lodged a claim against the UK government. The previous week a arbitration panel in Washington DC was set up to hear it.

The company is suing the UK for the profits it could have earned if the mine had been allowed to go ahead. The public has little idea how much this sum represents. Which individual is representing it in opposition to the British government? An elected representative, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The administration passes a law, the domestic court supports it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Case

Simultaneously that the court on the mining lawsuit was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case so far, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has already filed a claim against another European state on these grounds, seeking a colossal sum: an amount representing half state's annual revenue. Among the lawyers on his side? Cherie Blair, married to the ex-UK leader.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as security for its financial support package is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine critically depends on.

Empty Promises and Growing Costs

The public was told that these events wouldn’t happen. In 2014, a former prime minister, promoting the most significant and hazardous of all such treaties, told us: “The UK has signed trade agreement upon trade deal and we have never seen a issue in the past.” An expert on this topic described activists of “alarmism … in reality, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries needed to fear such legal actions. Predictions that “as corporations start to realise the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with scepticism.

That warning has now materialised. Recently, oil and gas and mining firms have filed a unprecedented number of cases against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have thus far won $114bn via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP