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How do you reckon our political system works? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills become law. Legislation is upheld by the courts. Simple as that. Well, that was how it once functioned. No longer.

The Rise of Secret Courts

Nowadays, overseas companies, along with the wealthy individuals who own them, have the power to sue nation states for the policies they pass, at private courts made up of business advocates. Such disputes take place away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even enterprises headquartered in this country. They are open exclusively to businesses registered abroad.

When a secret court rules that a government measure might diminish the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

These sums represent not tangible damages but compensation the panel members determine the company might otherwise have made. The state might be compelled to abandon its policy. It will be discouraged from enacting future policies in that area, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being initiated, as corporations observe each other, and hedge funds fund legal actions in exchange for a portion of the takings. The consequence? Democratic sovereignty and popular rule are turning into prohibitively expensive.

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

A Concrete Instance: The UK Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The judge determined that proposals to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The new government subsequently revoked the permission the former government had granted. Now, this victory faces being overturned by an offshore tribunal reporting to only the corporations petitioning it.

In August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in the United States was convened to consider the case.

The company is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. We have little idea how much this could amount to. Who is acting on its behalf against the state? A member of parliament, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a foreign company contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know nothing of the case so far, but it seems likely that he may employ the arbitration process to contest the restrictions the UK levied against him following the invasion of Ukraine. He has filed a claim against a small nation with similar intent, claiming $16bn: equivalent to half of government’s yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, married to the previous PM.

Trade specialists believe that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its financial support package stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over sovereign states might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a senior politician, promoting the largest and riskiest of all these agreements, stated: “Britain has agreed to trade agreement upon trade deal and there has not been a issue in the past.” A consultant on this matter labelled critics of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries had to worry about such legal actions. Predictions that “once firms start to realise the authority bestowed upon them, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That warning has come to pass. This year, fossil fuel and resource corporations have initiated a unprecedented number of suits against nations rich and poor, challenging – similar to the Whitehaven project – government attempts to halt climate breakdown. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured the majority. That represents the combined GDP