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How do you understand our system of government operates? It could be along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. Yet, that’s how it operated in the past. Not anymore.

The Emergence of Secret Courts

In the modern era, foreign corporations, along with the oligarchs that control them, can sue governments for the policies they pass, at private courts composed of commercial attorneys. These proceedings are held away from public scrutiny. Unlike our courts, these bodies grant no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, or even enterprises operating from this country. The door is open exclusively to corporations registered abroad.

Should an arbitration panel determines that a government measure may compromise the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These awards represent not actual losses but compensation the tribunal officials determine the company could potentially have made. The administration may have to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being initiated, as firms learn from each other, and investment funds bankroll lawsuits in return for a share of the awards. The result? Democratic sovereignty and democratic governance are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the choices made by parliaments is that this provision has been inserted – without public consent, and frequently under a climate of total confidentiality – inside international trade agreements.

A Concrete Example: The Cumbrian Coalmine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer found that proposals to excavate the first new deep coal mine in the UK for a generation, 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 Labour government later cancelled the permission the Tories had approved. Today, this success is under threat by an secret arbitration panel answering to only the companies filing the suit.

Last August, a company whose final controllers are based in the tax haven initiated proceedings challenging the UK government. Last week a tribunal in the United States was established to consider the case.

The claimant is litigating against the UK for the profits it might have made if the mine had been allowed to proceed. The public has no clear indication how much this sum represents. What legal team is serving as its counsel challenging the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The state makes a decision, the domestic court upholds it, then a overseas corporation contests it through an undemocratic private court, and a elected official acts on its behalf.

A Sanctions Case

Simultaneously that the court on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has already started suing a small nation with similar intent, claiming $16bn: half that government’s annual revenue. Part of the legal team acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

Empty Promises and Growing Risks

We were assured that these scenarios were not possible. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter labelled activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries needed to fear such legal actions. Cautionary notes that “once firms start to realise the influence they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were met with widespread derision.

That threat has come to pass. Recently, energy and mining firms have initiated a unprecedented number of cases against nations rich and poor, challenging – similar to the UK mine – state efforts to stop environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP