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Can you reckon our system of government operates? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. The law is maintained by the courts. That's it. Yet, that was how it operated in the past. Not anymore.

The Advent of Secret Courts

In the modern era, international firms, along with the oligarchs who own them, can sue elected administrations for the laws they pass, at secret arbitration panels composed of business advocates. These proceedings are held in secret. Differing from national judiciaries, these panels allow no right of appeal or judicial review. You or I are barred from bringing a case to them, just as our government, or even enterprises operating from this country. They are open solely for businesses based overseas.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it may order damages of vast sums, running into billions.

This compensation constitute not actual losses but money the arbitrators conclude the company might otherwise have made. The state may have to drop the legislation. It becomes hesitant to enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being filed, as companies observe each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The outcome? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the decisions enacted by parliaments is that this provision has been incorporated – without public consent, and often in a climate of extreme secrecy – into trade treaties.

A Concrete Example: The UK Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer ruled that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no impact on national carbon targets. The incoming administration subsequently revoked the licence the former government had issued. Currently, this victory is under threat by an secret arbitration panel answering to no one but the entities petitioning it.

During August, a corporate entity whose ultimate owners are located in the offshore financial centre lodged a claim challenging the UK government. Last week a dispute settlement body in the US capital was set up to hear it.

This firm is seeking compensation from the UK for the money it would have generated if the mine had received permission to commence operations. The public has no clear indication how much this could amount to. What legal team is acting on its behalf against the UK administration? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration passes a law, the high court upholds it, then a foreign company contests it through an secretive private court, and a elected official works for its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case at present, but it is highly possible that he’ll use the tribunal to fight the sanctions the UK levied against him following the invasion of Ukraine. He has already filed a claim against another European state for this reason, claiming sixteen billion dollars: half that government’s yearly income. Part of the counsel representing him there? the wife of a former prime minister, spouse of the previous PM.

Trade specialists argue that the EU’s delay in utilising seized Russian assets as security for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over sovereign states may be obstructing the funds Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, championing the biggest and most dangerous of all these agreements, stated: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An expert on this matter described campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by such legal actions. Predictions that “when companies start to realise the influence they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction has now materialised. In the current period, fossil fuel and extraction companies have filed a historic level of suits against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – official measures to stop global warming. Firms have to date won $114bn via ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP