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What is your reckon our system of government functions? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills become law. The law is upheld by the courts. End of story. Yet, that’s how it used to work. Those days are over.

The Advent of Secret Arbitration Panels

In the modern era, international firms, along with the billionaires who own them, have the power to sue elected administrations for the laws they pass, at private courts staffed by commercial attorneys. Such disputes are held away from public scrutiny. Unlike our courts, these tribunals grant no opportunity to appeal or legal review. The general public are barred from bringing a case to them, nor can our government, including enterprises based in this country. Access is granted only to entities based overseas.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not real financial harm but money the tribunal officials decide the company might otherwise have made. The government could be forced to abandon its policy. It is discouraged from enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being filed, as corporations observe each other, and hedge funds fund legal actions for a share of a portion of the takings. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the decisions enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and often in conditions of extreme secrecy – inside international trade agreements.

A Real-World Instance: The UK Coal Mine

Last year, environmental campaigners won a great victory at the senior court. The presiding officer found that plans to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine would have no impact on climate commitments. The Labour government later cancelled the licence the Tories had issued. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to exclusively the companies filing the suit.

In August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings versus the UK government. Recently a tribunal in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this could amount to. Which individual is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary supports it, then a international entity contests it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

A Sanctions Case

Concurrently that the tribunal on the coalmine case was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know nothing of the case at present, but it appears probable that he’ll use the arbitration process to fight the sanctions the UK imposed on him after the invasion of Ukraine. He has already started suing Luxembourg for this reason, demanding a colossal sum: equivalent to half of government’s yearly income. Among the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations could be blocking the finance Ukraine critically depends on.

False Assurances and Mounting Risks

Politicians promised that such things wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all these agreements, told us: “The UK has signed trade deal upon trade deal and we have never seen a case in the past.” A consultant on this matter accused critics of “scaremongering … the truth 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. Predictions that “once firms begin to understand the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were dismissed with widespread derision.

That prediction has now materialised. This year, fossil fuel and extraction companies have initiated a unprecedented number of cases against nations rich and poor, opposing – like the example of the Whitehaven project – government attempts to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded eighty-four billion dollars. That represents the combined GDP