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How do you perceive our political system works? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills become law. The law is maintained by the courts. Simple as that. However, that used to be how it operated in the past. No longer.

The Emergence of Secret Tribunals

Today, international firms, and the billionaires behind them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these panels provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even companies based in this country. The door is open exclusively to corporations registered abroad.

If a tribunal finds that a legislative action may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions, even billions.

These awards are based not on tangible damages but compensation the tribunal officials conclude the company could potentially have made. The state might be compelled to abandon its policy. It will be hesitant to enacting future policies along the same lines, for fear of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as corporations observe each other, and private equity bankroll lawsuits in exchange for a cut of the settlements. The result? Sovereignty and democratic governance are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the choices enacted by legislatures is that this provision has been inserted – absent public approval, and typically amid a climate of extreme secrecy – inside international trade agreements.

A Specific Instance: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for three decades, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government then withdrew the licence the previous administration had approved. Now, this success faces being overturned by an secret arbitration panel answering to no one but the companies petitioning it.

During August, a firm whose ultimate owners are based in the Cayman Islands initiated proceedings against the UK government. The previous week a arbitration panel in Washington DC was convened to adjudicate on it.

The claimant is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Who is serving as its counsel against the state? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The administration makes a decision, the domestic court upholds it, then a international entity challenges it through an secretive private court, and a elected official acts on its behalf.

The Russian Challenge

Simultaneously that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it is highly possible that he’ll use the arbitration process to challenge the restrictions the UK enacted against him following the war in Ukraine. He has previously filed a claim against Luxembourg for this reason, claiming a colossal sum: half that government’s annual revenue. Part of the counsel on his side? the wife of a former prime minister, wife of the former British prime minister.

International law scholars argue that the EU’s hesitation in utilising seized state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that these events were not possible. Years ago, a senior politician, promoting the largest and riskiest of all such treaties, declared: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” A consultant on this topic labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “as corporations begin to understand the power they now possess, they will shift their focus from the poorer states to the wealthy nations” were met with general mockery.

That threat is now a reality. Recently, energy and mining firms have lodged a historic level of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to prevent climate breakdown. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP