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How do you perceive our political system operates? Maybe something like this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. Not anymore.

The Emergence of Secret Courts

Nowadays, international firms, and the oligarchs behind them, have the power to sue governments for the policies they pass, at private courts staffed by corporate lawyers. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies allow no opportunity to appeal or legal review. You or I are unable to file a case to them, and neither can our government, or even companies operating from this country. They are open solely for entities based overseas.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it may order damages of hundreds of millions, running into billions.

This compensation are based not on tangible damages but funds the arbitrators decide the company could potentially have made. The administration might be compelled to abandon its policy. It is hesitant to introducing similar legislation in that area, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and private equity bankroll lawsuits in return for a share of the settlements. The consequence? Sovereignty and democratic governance are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the decisions taken by elected bodies is that this provision has been incorporated – absent public approval, and frequently under conditions of total confidentiality – within international trade agreements.

A Specific Example: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The judge ruled that proposals to open the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The new government later cancelled the licence the previous administration had approved. Currently, this success faces being overturned by an secret arbitration panel reporting to exclusively the entities bringing the case.

In August, a firm whose beneficial owners are located in the offshore financial centre initiated proceedings challenging the UK government. Recently a dispute settlement body in the US capital was established to consider the case.

This firm is suing the UK for the revenue it could have earned if the mine had been allowed to commence operations. The public has little idea how much this sum represents. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a overseas corporation contests it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coalmine case was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case at present, but it is highly possible that he’ll use the arbitration process to challenge the penalties the UK levied against him subsequent to the war in Ukraine. He has already started suing Luxembourg with similar intent, claiming sixteen billion dollars: an amount representing half nation's yearly income. Included in the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s hesitation in using frozen oligarchs' funds as security for its financial support package is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Growing Risks

Politicians promised that such things were not possible. Previously, a former prime minister, advocating for the most significant and hazardous of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” A consultant on this issue accused activists 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. Cautionary notes that “when companies begin to understand the influence they now possess, they will redirect their efforts from the weak nations to the strong ones” were dismissed with scepticism.

That prediction has now materialised. In the current period, oil and gas and mining firms have filed a record number of claims against nations rich and poor, opposing – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Firms have so far won vast sums by using ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP