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Can you understand our political system works? Perhaps similar to this. We elect MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. However, that used to be how it once functioned. No longer.

The Rise of Secret Courts

Nowadays, international firms, or the billionaires who own them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by corporate lawyers. The cases are held away from public scrutiny. Differing from national judiciaries, these bodies grant no opportunity to appeal or legal review. The general public cannot take a case to them, nor can our government, including companies based in this country. Access is granted only to businesses based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s projected profits, it may order damages of hundreds of millions, even billions.

These sums are based not on tangible damages but funds the tribunal officials conclude the company would perhaps have made. The government may have to drop the legislation. It is discouraged from enacting future policies in that area, for fear of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and hedge funds finance suits in return for a share of the awards. The outcome? National sovereignty and democracy are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the decisions made by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid a climate of extreme secrecy – within international trade agreements.

A Real-World Example: The Whitehaven Coal Mine

Last year, activists achieved a major legal triumph at the high court. The presiding officer found that schemes to excavate the first major coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have had zero effect on climate commitments. The incoming administration then withdrew the permission the former government had issued. Currently, this success faces being overturned by an offshore tribunal answering to no one but the corporations petitioning it.

In August, a company whose final controllers reside in the tax haven filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was established to consider the case.

This firm is litigating against the UK for the profits it could have earned if the mine had been permitted to proceed. We have little idea how much this sum represents. Who is acting on its behalf against the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary supports it, then a international entity contests it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

The Russian Challenge

On the same day that the tribunal on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case at present, but it appears probable that he may employ the tribunal to challenge the restrictions the UK levied against him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg on these grounds, demanding $16bn: an amount representing half nation's annual revenue. Included in the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine critically depends on.

Empty Promises and Mounting Costs

Politicians promised that such things were not possible. In 2014, a senior politician, promoting the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and we have never seen a issue in the past.” An expert on this matter described critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “once firms begin to understand the power bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by general mockery.

That warning has come to pass. This year, energy and extraction companies have initiated a historic level of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – government attempts to stop climate breakdown. Corporations have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP