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What is your perceive our system of government operates? Maybe similar to this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. The law is upheld by the courts. End of story. However, that used to be how it used to work. No longer.

The Advent of Secret Tribunals

Nowadays, international firms, or the wealthy individuals behind them, can sue governments for the policies they pass, at secret arbitration panels staffed by business advocates. Such disputes are held behind closed doors. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, including enterprises operating from this country. The door is open exclusively to corporations registered abroad.

When a secret court determines that a law or policy may compromise the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

These awards represent not actual losses but money the panel members determine the company could potentially have made. The administration might be compelled to abandon its policy. It is discouraged from enacting future policies along the same lines, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of legal actions are being brought, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The consequence? Sovereignty and popular rule are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the decisions taken by legislatures is that this provision has been inserted – without democratic mandate, and frequently under conditions of total confidentiality – inside bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The justice determined that plans to open the first major coal mine in the UK for three decades, in northwest England, had been wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no impact on our carbon budgets. The Labour government subsequently revoked the consent the previous administration had issued. Today, this victory could be compromised by an foreign court reporting to exclusively the corporations bringing the case.

Last August, a firm whose beneficial owners are based in the offshore financial centre filed a lawsuit versus the UK government. Recently a arbitration panel in Washington DC was established to consider the case.

The company is seeking compensation from the UK for the money it could have earned if the mine had received permission to commence operations. The public has no idea how much this sum represents. What legal team is serving as its counsel challenging the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a foreign company challenges it through an unaccountable private court, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case at present, but it appears probable that he may employ the tribunal to contest the sanctions the UK levied against him after the Russian aggression. He has already filed a claim against Luxembourg on these grounds, demanding $16bn: an amount representing half nation's annual revenue. Part of the lawyers acting for him in that case? a prominent lawyer, married to the former British prime minister.

Legal experts contend that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over sovereign states might be preventing the funds Ukraine desperately needs.

Misleading Claims and Escalating Costs

The public was told that these scenarios could not occur. In 2014, a government leader, championing the largest and riskiest of all these agreements, declared: “The UK has signed trade agreement upon trade deal and there has never been a case in the past.” An expert on this topic described critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “once firms grasp the power they’ve been granted, they will shift their focus from the poorer states to the developed economies” were met with widespread derision.

That threat is now a reality. In the current period, fossil fuel and resource corporations have lodged a unprecedented number of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – government attempts to stop climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP