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What is your understand our political system operates? It could be along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Statutes is maintained by the courts. Simple as that. Yet, that was how it used to work. No longer.

The Rise of Secret Courts

Today, international firms, or the wealthy individuals behind them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. These proceedings take place away from public scrutiny. In contrast to domestic courts, these bodies provide no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, just as our government, including businesses operating from this country. They are open exclusively to corporations registered abroad.

When a secret court finds that a government measure may compromise the corporation’s expected profits, it can award damages of hundreds of millions, potentially billions.

This compensation are based not on tangible damages but funds the arbitrators decide the company would perhaps have made. The administration may have to abandon its policy. It will be discouraged from passing future laws along the same lines, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of disputes are being filed, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The outcome? National sovereignty and popular rule are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the decisions taken by legislatures is that this stipulation has been incorporated – without democratic mandate, and often in a climate of extreme secrecy – within international trade agreements.

A Specific Instance: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the High Court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for three decades, in northwest England, had been wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have no consequence on our carbon budgets. The incoming administration later cancelled the licence the former government had issued. Currently, this victory faces being overturned by an foreign court answering to exclusively the corporations bringing the case.

During August, a firm whose beneficial owners reside in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in the US capital was convened to adjudicate on it.

This firm is litigating against the UK for the money it might have made if the mine had been permitted to proceed. The public has little idea how much this sum represents. What legal team is serving as its counsel against the state? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The administration passes a law, the domestic court upholds it, then a international entity disputes it through an undemocratic private court, and a sitting MP acts on its behalf.

A Sanctions Case

Concurrently that the tribunal on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case at present, but it seems likely that he may employ the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, demanding $16bn: equivalent to half of state's annual revenue. Part of the counsel on his side? a prominent lawyer, spouse of the former British prime minister.

Trade specialists believe that the EU’s procrastination in utilising seized oligarchs' funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations might be preventing the finance Ukraine urgently requires.

Empty Promises and Growing Costs

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, championing the biggest and most dangerous of all these agreements, told us: “The UK has signed trade deal after trade deal and there has not been a case in the past.” A consultant on this topic labelled campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries should be concerned by ISDS claims. Warnings that “once firms start to realise the influence they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were met with scepticism.

That prediction has now materialised. In the current period, energy and extraction companies have filed a record number of cases against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Firms have so far won $114bn by using ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP