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What is your perceive our system of government operates? Maybe similar to this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills become law. The law are enforced by the courts. Simple as that. Yet, that used to be how it used to work. Those days are over.

The Rise of Secret Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes are conducted behind closed doors. Differing from national judiciaries, these tribunals allow no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even businesses headquartered in this country. They are open only to corporations operating from foreign soil.

When a secret court finds that a law or policy could harm the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

These sums represent not real financial harm but money the tribunal officials determine the company would perhaps have made. The administration could be forced to abandon its policy. It will be discouraged from enacting future policies in that area, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as companies learn from each other, and hedge funds fund legal actions in exchange for a share of the awards. The outcome? Democratic sovereignty and democratic governance are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the decisions taken by parliaments is that this clause has been inserted – without democratic mandate, and often in an atmosphere of profound opacity – within trade treaties.

A Real-World Example: The Whitehaven Coal Mine

Last year, a conservation group secured a significant win at the high court. The presiding officer ruled that schemes to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine could have no consequence on national carbon targets. The new government subsequently revoked the permission the previous administration had approved. Now, this legal outcome faces being overturned by an foreign court answering to exclusively the companies petitioning it.

In August, a firm whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. Recently a arbitration panel in the United States was convened to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had been allowed to commence operations. The public has little idea how much this could amount to. Which individual is representing it against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The state enacts a policy, the national judiciary validates it, then a international entity challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Case

Simultaneously that the court on the coalmine case was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case so far, but it is highly possible that he may employ the ISDS mechanism to challenge the penalties the UK levied against him following the invasion of Ukraine. He has already initiated proceedings against a small nation with similar intent, seeking $16bn: half that state's yearly income. Included in the legal team representing him there? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists contend that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the money Ukraine urgently requires.

Misleading Claims and Growing Threats

We were assured that these events could not occur. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” An adviser on this topic described critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms start to realise the power bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were met with scepticism.

That prediction has now materialised. This year, fossil fuel and resource corporations have filed a historic level of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to halt global warming. Firms have thus far won vast sums via ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP