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Can you understand our political system works? It could be something like this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. The law is upheld by the courts. That's it. Yet, that’s how it once functioned. No longer.

The Advent of Secret Tribunals

Today, international firms, along with the billionaires behind them, can sue governments for the policies they pass, at secret arbitration panels staffed by commercial attorneys. The cases are held behind closed doors. In contrast to domestic courts, these bodies allow no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses headquartered in this country. They are open only to entities registered abroad.

When a secret court rules that a government measure might diminish the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

These awards represent not actual losses but funds the panel members decide the company would perhaps have made. The state could be forced to rescind the measure. It is deterred from introducing similar legislation in that area, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of legal actions are being filed, as corporations take cues from each other, and private equity fund legal actions for a share of a portion of the awards. The consequence? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices taken by elected bodies is that this clause has been incorporated – absent public approval, and typically amid an atmosphere of extreme secrecy – into bilateral investment treaties.

A Real-World Example: The Whitehaven Coalmine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The judge ruled that schemes to open the first major coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have had zero effect on our carbon budgets. The Labour government subsequently revoked the permission the previous administration had issued. Today, this victory could be compromised by an foreign court accountable to no one but the entities bringing the case.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands initiated proceedings versus the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.

The company is suing the UK for the money it could have earned if the mine had been allowed to commence operations. We have little idea how much this sum represents. Who is representing it in opposition to the UK administration? A sitting MP, and ex-law officer in the outgoing administration, that great patriot the MP. The state enacts a policy, the high court supports it, then a overseas corporation contests it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the court on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case at present, but it seems likely that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him following the war in Ukraine. He has initiated proceedings against Luxembourg on these grounds, demanding sixteen billion dollars: equivalent to half of state's annual revenue. Among the counsel acting for him in that case? Cherie Blair, wife of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in using frozen state funds as guarantee for its financial support package arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that these events could not occur. Previously, a government leader, promoting the largest and riskiest of all such treaties, told us: “Britain has agreed to trade deal upon trade deal and there has never been a issue in the past.” A consultant on this topic accused campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “when companies begin to understand the authority they now possess, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.

That threat is now a reality. In the current period, oil and gas and mining firms have filed a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the Whitehaven project – official measures to prevent environmental catastrophe. Corporations have to date won $114bn through ISDS, of which energy giants have secured the majority. That equates to the combined GDP