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Can you reckon our political system functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Emergence of Secret Courts

Nowadays, international firms, along with the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are conducted behind closed doors. Unlike our courts, these bodies grant no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted solely for businesses registered abroad.

If a tribunal determines that a government measure could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions, running into billions.

This compensation constitute not real financial harm but funds the arbitrators determine the company would perhaps have made. The state may have to abandon its policy. It will be discouraged from passing future laws in that area, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as firms observe each other, and hedge funds fund legal actions for a share of a portion of the settlements. The outcome? Sovereignty and democracy are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the decisions made by parliaments is that this provision has been incorporated – without democratic mandate, and typically amid a climate of extreme secrecy – into international trade agreements.

A Real-World Example: The UK Coal Mine

A year ago, a conservation group won a great victory at the senior court. The justice determined that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine could have zero effect on climate commitments. The new government subsequently revoked the licence the Tories had approved. Now, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the entities petitioning it.

Last August, a firm whose final controllers are based in the tax haven filed a lawsuit against the UK government. The previous week a tribunal in Washington DC was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. Citizens have no clear indication how much this could amount to. Which individual is acting on its behalf in opposition to the UK administration? A member of parliament, and former attorney-general in the previous government, the noted patriot the MP. The state enacts a policy, the national judiciary supports it, then a foreign company challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

An Oligarch's Case

On the same day that the court on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case to date, but it is highly possible that he’ll use the tribunal to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has filed a claim against another European state on these grounds, demanding $16bn: half that nation's yearly income. Among the legal team on his side? Cherie Blair, wife of the former British prime minister.

International law scholars believe that the EU’s procrastination in leveraging immobilised state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations might be preventing the finance Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that these scenarios were not possible. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An expert on this topic labelled critics of “scaremongering … in reality, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “once firms begin to understand the authority they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were met with widespread derision.

That warning has come to pass. This year, oil and gas and resource corporations have lodged a historic level of cases against nations rich and poor, challenging – similar to the Cumbrian coalmine – official measures to prevent global warming. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP