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Can you perceive our system of government works? Maybe something like this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Legislation is maintained by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Rise of Secret Courts

Nowadays, overseas companies, along with the wealthy individuals that control them, are able to litigate against nation states for the regulations they pass, at private courts staffed by corporate lawyers. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even companies headquartered in this country. They are open only to corporations operating from foreign soil.

If a tribunal finds that a law or policy may compromise the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, even billions.

This compensation constitute not real financial harm but compensation the panel members decide the company could potentially have made. The government could be forced to rescind the measure. It becomes discouraged from enacting future policies along the same lines, due to the risk of facing litigation.

A Process Growing Exponentially

Unprecedented levels of cases are being brought, as firms take cues from each other, and hedge funds bankroll lawsuits in exchange for a cut of the settlements. The result? Democratic sovereignty and popular rule are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the decisions made by parliaments is that this provision has been incorporated – without democratic mandate, and often in a climate of profound opacity – within trade treaties.

A Real-World Case: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The judge determined that schemes to open the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have no impact on our carbon budgets. The Labour government then withdrew the licence the previous administration had granted. Today, this legal outcome faces being overturned by an offshore tribunal answering to only the corporations filing the suit.

In August, a firm whose beneficial owners are based in the offshore financial centre lodged a claim versus the UK government. The previous week a dispute settlement body in Washington DC was established to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to proceed. We have little idea how much this could amount to. Which individual is representing it challenging the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The state enacts a policy, the high court upholds it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Case

On the same day that the court on the mining lawsuit was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know nothing of the case to date, but it is highly possible that he will utilise the arbitration process to contest the restrictions the UK enacted against him after the invasion of Ukraine. He has already initiated proceedings against a small nation for this reason, claiming $16bn: half that state's annual revenue. Among the legal team representing him there? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars contend that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Mounting Threats

We were assured that these events were not possible. Years ago, a senior politician, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” An expert on this issue accused activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states needed to fear ISDS claims. Warnings that “when companies grasp the influence they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That threat is now a reality. In the current period, energy and resource corporations have filed a record number of suits against nations rich and poor, contesting – like the example of the UK mine – state efforts to prevent climate breakdown. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured $84bn. That equates to the combined GDP