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Can you reckon our system of government operates? Perhaps something like this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Statutes are enforced by the courts. That's it. However, that was how it once functioned. No longer.

The Advent of Secret Arbitration Panels

Nowadays, international firms, or the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at private courts composed of commercial attorneys. These proceedings are conducted behind closed doors. Differing from national judiciaries, these panels provide no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies operating from this country. They are open exclusively to corporations registered abroad.

When a secret court rules that a law or policy could harm the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, even billions.

These sums represent not actual losses but money the tribunal officials conclude the company could potentially have made. The state may have to abandon its policy. It becomes hesitant to introducing similar legislation along the same lines, worried about being sued.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms observe each other, and private equity fund legal actions in return for a share of the awards. The outcome? National sovereignty and popular rule are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the decisions enacted by legislatures is that this stipulation has been incorporated – absent public approval, and often in an atmosphere of total confidentiality – into trade treaties.

A Concrete Example: The Cumbrian Coalmine

A year ago, activists secured a significant win at the High Court. The presiding officer determined that plans to dig the first major coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have zero effect on national carbon targets. The Labour government subsequently revoked the consent the Tories had issued. Now, this legal outcome faces being overturned by an offshore tribunal reporting to only the corporations bringing the case.

During August, a firm whose ultimate owners reside in the offshore financial centre filed a lawsuit versus the UK government. Last week a arbitration panel in the US capital was set up to consider the case.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. Citizens have no clear indication how much this might be. Who is serving as its counsel against the UK administration? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a overseas corporation disputes it through an secretive private court, and a elected official represents its behalf.

An Oligarch's Challenge

Simultaneously that the court on the mining lawsuit was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case so far, but it seems likely that he may employ the tribunal to fight the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has already started suing another European state for this reason, claiming sixteen billion dollars: equivalent to half of nation's yearly budget. Among the counsel acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists believe that the EU’s delay in utilising seized state funds as collateral for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over elected governments could be blocking the money Ukraine urgently requires.

Empty Promises and Growing Costs

Politicians promised that these events wouldn’t happen. In 2014, a government leader, advocating for the biggest and most dangerous of all these agreements, told us: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” An adviser on this issue accused activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “as corporations begin to understand the authority they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were dismissed with widespread derision.

That warning has now materialised. Recently, oil and gas and extraction companies have filed a historic level of claims against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to stop global warming. Corporations have to date won $114bn by using ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP