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How do you perceive our system of government operates? It could be something like this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Statutes is maintained by the courts. Simple as that. However, that’s how it once functioned. No longer.

The Advent of Secret Courts

Today, international firms, along with the billionaires that control them, can sue elected administrations for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held away from public scrutiny. Unlike our courts, these bodies grant no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, including enterprises operating from this country. They are open only to businesses operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

These awards are based not on real financial harm but compensation the panel members decide the company would perhaps have made. The government may have to abandon its policy. It becomes discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations learn from each other, and hedge funds finance suits for a share of a portion of the takings. The consequence? Democratic sovereignty and democratic governance are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the rulings made by legislatures is that this clause has been incorporated – absent public approval, and often in conditions of extreme secrecy – into international trade agreements.

A Real-World Example: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The presiding officer found that schemes to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no impact on our carbon budgets. The incoming administration subsequently revoked the permission the former government had approved. Today, this success could be compromised by an foreign court answering to exclusively the corporations filing the suit.

In August, a company whose beneficial owners are located in the offshore financial centre lodged a claim versus the UK government. Last week a arbitration panel in the US capital was established to adjudicate on it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to proceed. The public has no clear indication how much this might be. What legal team is representing it against the state? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a international entity disputes it through an secretive arbitration panel, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was convened, 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 at present, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK levied against him subsequent to the Russian aggression. He has already started suing another European state on these grounds, seeking a colossal sum: half that nation's yearly income. Part of the lawyers representing him there? Cherie Blair, married to the former British prime minister.

International law scholars argue that the EU’s delay in using frozen state funds as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over sovereign states could be blocking the money Ukraine desperately needs.

Misleading Claims and Escalating Threats

The public was told that such things wouldn’t happen. Previously, a former prime minister, championing the largest and riskiest of all such treaties, told us: “The UK has signed trade deal upon trade deal and we have never seen a issue in the past.” An adviser on this matter accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies grasp the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.

That warning has come to pass. In the current period, oil and gas and mining firms have initiated a record number of suits against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to halt global warming. Corporations have to date won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP