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What is your reckon our system of government operates? It could be similar to this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills become law. Statutes are enforced by the courts. That's it. Yet, that was how it operated in the past. Those days are over.

The Advent of Secret Courts

Today, international firms, along with the wealthy individuals that control them, can sue nation states for the policies they pass, at offshore tribunals made up of commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these panels provide no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, including businesses operating from this country. Access is granted only to corporations based overseas.

If a tribunal finds that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but funds the panel members decide the company would perhaps have made. The state may have to rescind the measure. It becomes deterred from introducing similar legislation in that area, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being filed, as corporations observe each other, and investment funds finance suits in exchange for a portion of the awards. The consequence? National sovereignty and democratic governance are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the choices made by legislatures is that this stipulation has been inserted – without public consent, and typically amid an atmosphere of total confidentiality – into trade treaties.

A Specific Instance: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the senior court. The presiding officer determined that schemes to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had accepted the bizarre claim that the mine could have no impact on national carbon targets. The incoming administration later cancelled the consent the former government had granted. Today, this victory faces being overturned by an secret arbitration panel reporting to only the companies filing the suit.

During August, a firm whose ultimate owners reside in the Cayman Islands lodged a claim versus the UK government. Recently a tribunal in the US capital was convened to consider the case.

This firm is suing the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this might be. What legal team is representing it challenging the British government? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The government passes a law, the national judiciary supports it, then a foreign company disputes it through an undemocratic arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Lawsuit

On the same day that the panel on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know scarce of the case at present, but it is highly possible that he will utilise the arbitration process to challenge the sanctions the UK levied against him after the invasion of Ukraine. He has previously filed a claim against another European state for this reason, demanding $16bn: equivalent to half of state's annual revenue. Included in the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in utilising seized Russian assets as security for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

Empty Promises and Mounting Risks

We were assured that these events wouldn’t happen. In 2014, a government leader, championing the largest and riskiest of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” An expert on this matter described campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about such legal actions. Predictions that “when companies begin to understand the authority they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with general mockery.

That prediction has now materialised. This year, oil and gas and mining firms have lodged a record number of suits against nations rich and poor, challenging – similar to the Whitehaven project – state efforts to halt climate breakdown. Firms have to date won $114bn by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP