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How do you perceive our system of government operates? Perhaps something like this. We elect MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Advent of Secret Courts

Today, international firms, and the wealthy individuals who own them, can sue elected administrations for the policies they pass, at private courts staffed by corporate lawyers. Such disputes are held away from public scrutiny. Differing from national judiciaries, these tribunals allow no right of appeal or judicial review. You or I are unable to file a case to them, just as our government, including enterprises based in this country. Access is granted solely for corporations based overseas.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it can award compensation of vast sums, even billions.

This compensation constitute not tangible damages but money the arbitrators conclude the company would perhaps have made. The government could be forced to rescind the measure. It becomes hesitant to enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Running Rampant

Record numbers of disputes are being filed, as firms take cues from each other, and hedge funds finance suits for a share of a portion of the awards. The result? Sovereignty and popular rule are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede national legislation and the decisions taken by elected bodies is that this provision has been inserted – without public consent, and frequently under an atmosphere of extreme secrecy – inside bilateral investment treaties.

A Real-World Example: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The justice ruled that proposals to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine would have no consequence on our carbon budgets. The new government subsequently revoked the consent the previous administration had granted. Currently, this success faces being overturned by an offshore tribunal accountable to exclusively the companies bringing the case.

In August, a corporate entity whose beneficial owners reside in the Cayman Islands filed a lawsuit against the UK government. Last week a tribunal in Washington DC was established to adjudicate on it.

This firm is suing the UK for the revenue it would have generated if the mine had been allowed to go ahead. The public has no idea how much this could amount to. What legal team is representing it challenging the state? A sitting MP, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The government passes a law, the national judiciary supports it, then a international entity contests it through an unaccountable arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Case

On the same day that the panel on the coalmine case was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it is highly possible that he will utilise the ISDS mechanism to fight the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has started suing another European state with similar intent, claiming $16bn: an amount representing half nation's annual revenue. Part of the legal team acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

Legal experts contend that the EU’s delay in leveraging immobilised state funds as security for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Risks

Politicians promised that these events were not possible. Years ago, a government leader, championing the biggest and most dangerous of all these agreements, declared: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An expert on this issue labelled activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “as corporations start to realise the influence bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That warning has now materialised. This year, oil and gas and extraction companies have lodged a historic level of cases against nations rich and poor, contesting – similar to the Whitehaven project – state efforts to halt global warming. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP