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How do you perceive our system of government functions? It could be something like this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that used to be how it used to work. Those days are over.

The Advent of Secret Courts

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these panels grant no avenue for appeal or legal review. You or I are unable to file a case to them, and neither can our government, including enterprises based in this country. Access is granted only to entities based overseas.

If a tribunal rules that a government measure might diminish the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These awards constitute not actual losses but money the tribunal officials conclude the company might otherwise have made. The administration may have to drop the legislation. It will be deterred from enacting future policies along the same lines, worried about facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and private equity bankroll lawsuits for a share of a cut of the awards. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the choices made by legislatures is that this stipulation has been inserted – absent public approval, and typically amid an atmosphere of total confidentiality – within bilateral investment treaties.

A Real-World Example: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The justice found that plans to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration subsequently revoked the licence the Tories had granted. Now, this victory could be compromised by an foreign court accountable to only the corporations filing the suit.

Last August, a company whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to proceed. Citizens have little idea how much this sum represents. What legal team is acting on its behalf challenging the state? A member of parliament, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The government passes a law, the high court supports it, then a international entity disputes it through an secretive private court, and a elected official works for its behalf.

The Russian Lawsuit

Concurrently that the court on the coalmine case was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case so far, but it appears probable that he may employ the tribunal to fight the sanctions the UK enacted against him following the war in Ukraine. He has already filed a claim against Luxembourg with similar intent, claiming $16bn: equivalent to half of state's yearly budget. Among the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s procrastination in using frozen state funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Escalating Risks

The public was told that these scenarios wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all such treaties, stated: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” A consultant on this matter labelled campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries needed to fear ISDS claims. Predictions that “when companies grasp the authority they now possess, they will turn their attention from the weak nations to the strong ones” were met with general mockery.

That warning is now a reality. In the current period, oil and gas and resource corporations have lodged a record number of cases against nations rich and poor, challenging – as in the case of the Whitehaven project – state efforts to halt climate breakdown. Firms have so far won vast sums by using ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP