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Can you perceive our system of government works? Maybe along the lines of this. We elect MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. End of story. Yet, that was how it used to work. No longer.

The Rise of Secret Courts

Nowadays, overseas companies, along with the billionaires who own them, can sue nation states for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are conducted away from public scrutiny. Unlike our courts, these bodies grant no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, including businesses operating from this country. The door is open only to businesses registered abroad.

If a tribunal rules that a law or policy may compromise the corporation’s projected profits, it has the power to grant damages of vast sums, even billions.

These sums are based not on actual losses but funds the arbitrators conclude the company would perhaps have made. The state might be compelled to abandon its policy. It becomes hesitant to enacting future policies in that area, due to the risk of being sued.

A System Spiralling Out of Control

Unprecedented levels of cases are being brought, as companies observe each other, and hedge funds finance suits in return for a portion of the awards. The outcome? Sovereignty and democratic governance are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the rulings taken by legislatures is that this clause has been written – absent public approval, and frequently under a climate of total confidentiality – within international trade agreements.

A Concrete Instance: The UK Coalmine

Twelve months ago, environmental campaigners won a great victory at the high court. The presiding officer determined that plans to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The new government then withdrew the licence the former government had issued. Currently, this victory is under threat by an secret arbitration panel reporting to exclusively the corporations bringing the case.

Last August, a corporate entity whose beneficial owners are based in the tax haven initiated proceedings against the UK government. Last week a tribunal in Washington DC was convened to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had been allowed to proceed. We have no idea how much this might be. Which individual is acting on its behalf challenging the British government? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a foreign company contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the court on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case at present, but it appears probable that he’ll use the arbitration process to challenge the restrictions the UK enacted against him following the Russian aggression. He has already initiated proceedings against Luxembourg for this reason, demanding $16bn: equivalent to half of government’s annual revenue. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists argue that the EU’s hesitation in using frozen state funds as collateral for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine urgently requires.

False Assurances and Growing Costs

The public was told that these scenarios were not possible. Years ago, a senior politician, championing the biggest and most dangerous of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” An adviser on this issue labelled campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations had to worry about these lawsuits. Warnings that “as corporations start to realise the power they now possess, they will turn their attention from the weak nations to the strong ones” were met with scepticism.

That warning has now materialised. In the current period, fossil fuel and mining firms have initiated a historic level of claims against nations rich and poor, challenging – similar to the Whitehaven project – state efforts to prevent environmental catastrophe. Corporations have so far won vast sums via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP