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How do you perceive our system of government functions? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Statutes is upheld by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Rise of Secret Tribunals

Nowadays, overseas companies, along with the wealthy individuals who own them, can sue elected administrations for the policies they pass, at private courts composed of business advocates. Such disputes take place behind closed doors. Differing from national judiciaries, these tribunals grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. They are open exclusively to businesses based overseas.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

These awards are based not on tangible damages but compensation the tribunal officials conclude the company would perhaps have made. The government could be forced to abandon its policy. It will be hesitant to passing future laws along the same lines, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of legal actions are being filed, as corporations learn from each other, and investment funds fund legal actions in return for a share of the awards. The result? Sovereignty and popular rule are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can override a country's own laws and the rulings taken by elected bodies is that this clause has been written – without democratic mandate, and typically amid conditions of total confidentiality – inside trade treaties.

A Specific Case: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the High Court. The justice determined that plans to dig the first new deep coal mine in the UK for three decades, in northwest England, were wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The new government subsequently revoked the licence the Tories had approved. Currently, this victory faces being overturned by an offshore tribunal answering to exclusively the entities bringing the case.

Last August, a company whose ultimate owners reside in the tax haven filed a lawsuit challenging the UK government. Last week a dispute settlement body in Washington DC was convened to consider the case.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to go ahead. The public has no idea how much this might be. Which individual is acting on its behalf in opposition to the state? A sitting MP, and former attorney-general in the previous government, the noted patriot the MP. The state enacts a policy, the domestic court upholds it, then a international entity challenges it through an undemocratic private court, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the mining lawsuit was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it appears probable that he’ll use the arbitration process to challenge the restrictions the UK imposed on him after the war in Ukraine. He has started suing Luxembourg on these grounds, demanding a colossal sum: equivalent to half of government’s yearly income. Among the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over sovereign states may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Mounting Costs

We were assured that these events were not possible. In 2014, a government leader, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed trade agreement upon trade deal and there has never been a problem in the past.” A consultant on this matter labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “as corporations grasp the influence they now possess, they will redirect their efforts from the poorer states to the developed economies” were met with general mockery.

That prediction has come to pass. Recently, energy and mining firms have filed a record number of suits against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to prevent climate breakdown. Firms have to date won $114bn by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP