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How do you understand our system of government works? Maybe along the lines of this. We elect MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation is upheld by the courts. End of story. Yet, that used to be how it once functioned. Those days are over.

The Rise of Secret Courts

Nowadays, international firms, along with the billionaires that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these panels allow no right of appeal or legal review. You or I cannot take a case to them, just as our government, or even enterprises based in this country. They are open solely for entities operating from foreign soil.

When a secret court rules that a government measure may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

This compensation constitute not actual losses but funds the panel members determine the company could potentially have made. The government may have to abandon its policy. It is hesitant to passing future laws of a similar nature, worried about facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and private equity bankroll lawsuits in exchange for a share of the awards. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the decisions taken by legislatures is that this provision has been written – without public consent, and frequently under an atmosphere of extreme secrecy – within trade treaties.

A Specific Case: The Whitehaven Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The justice found that proposals to open the first new deep coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the questionable argument that the mine could have no impact on climate commitments. The new government subsequently revoked the permission the former government had granted. Now, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the companies petitioning it.

Last August, a corporate entity whose ultimate owners are based in the tax haven lodged a claim challenging the UK government. The previous week a tribunal in the United States was established to consider the case.

The company is seeking compensation from the UK for the money it would have generated if the mine had been allowed to commence operations. Citizens have no clear indication how much this might be. Which individual is acting on its behalf against the British government? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a foreign company contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

The Russian Challenge

Simultaneously that the tribunal on the coal mine dispute was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case to date, but it seems likely that he’ll use the tribunal to challenge the penalties the UK imposed on him following the Russian aggression. He has filed a claim against another European state for this reason, claiming a colossal sum: equivalent to half of state's yearly budget. Included in the legal team on his side? the wife of a former prime minister, married to the ex-UK leader.

International law scholars believe that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over sovereign states may be obstructing the money Ukraine desperately needs.

False Assurances and Mounting Threats

The public was told that these scenarios were not possible. Years ago, a former prime minister, advocating for the largest and riskiest of all these agreements, told us: “Britain has agreed to trade deal upon trade deal and there has not been a problem in the past.” An adviser on this matter described campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations should be concerned by such legal actions. Warnings that “when companies begin to understand the power they now possess, they will turn their attention from the vulnerable countries to the developed economies” were greeted by widespread derision.

That warning has now materialised. In the current period, fossil fuel and extraction companies have filed a historic level of suits against nations across the economic spectrum, challenging – like the example of the UK mine – official measures to stop climate breakdown. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP