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How do you reckon our system of government functions? It could be something like this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Advent of Secret Courts

In the modern era, foreign corporations, and the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted behind closed doors. Differing from national judiciaries, these tribunals grant no right of appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even companies based in this country. The door is open only to entities based overseas.

Should an arbitration panel determines that a legislative action may compromise the corporation’s anticipated profits, it may order compensation of vast sums, even billions.

These sums are based not on actual losses but money the arbitrators determine the company would perhaps have made. The government may have to rescind the measure. It is deterred from introducing similar legislation in that area, worried about being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being brought, as corporations observe each other, and investment funds fund legal actions in exchange for a cut of the settlements. The result? National sovereignty and democratic governance are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the rulings made by parliaments is that this stipulation has been written – without democratic mandate, and typically amid an atmosphere of total confidentiality – into bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

Last year, environmental campaigners won a great victory at the High Court. The justice ruled that plans to dig the first deep coalmine in the UK for 30 years, in northwest England, had been wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration later cancelled the consent the Tories had approved. Today, this victory could be compromised by an offshore tribunal reporting to exclusively the entities filing the suit.

During August, a corporate entity whose ultimate owners are based in the tax haven filed a lawsuit against the UK government. The previous week a arbitration panel in the US capital was convened to consider the case.

This firm is seeking compensation from the UK for the money it might have made if the mine had been permitted to go ahead. The public has no clear indication how much this sum represents. What legal team is representing it challenging the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court supports it, then a international entity challenges it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Case

On the same day that the court on the coal mine dispute was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it seems likely that he may employ the tribunal to fight the penalties the UK enacted against him subsequent to the Russian aggression. He has already filed a claim against Luxembourg for this reason, claiming $16bn: half that government’s yearly income. Among the legal team on his side? Cherie Blair, wife of the previous PM.

International law scholars contend that the EU’s hesitation in utilising seized state funds as collateral for its aid for Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Empty Promises and Growing Costs

We were assured that such things wouldn’t happen. Years ago, a senior politician, advocating for the most significant and hazardous of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter accused critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “when companies start to realise the influence they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with widespread derision.

That prediction has now materialised. This year, fossil fuel and extraction companies have initiated a record number of suits against nations rich and poor, challenging – similar to the Whitehaven project – official measures to stop environmental catastrophe. Corporations have so far won $114bn by using ISDS, of which oil majors have been awarded the majority. That represents the combined GDP