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How do you understand our system of government works? Maybe along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Legislation are enforced by the courts. End of story. Yet, that was how it used to work. Those days are over.

The Rise of Secret Courts

Nowadays, overseas companies, and the billionaires that control them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of corporate lawyers. The cases are held away from public scrutiny. Unlike our courts, these panels grant no avenue for appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, including businesses headquartered in this country. They are open only to entities registered abroad.

Should an arbitration panel rules that a law or policy could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These sums constitute not real financial harm but funds the tribunal officials decide the company could potentially have made. The state may have to drop the legislation. It will be deterred from introducing similar legislation along the same lines, worried about facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The consequence? National sovereignty and popular rule are now prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices taken by parliaments is that this provision has been incorporated – absent public approval, and typically amid conditions of extreme secrecy – into international trade agreements.

A Concrete Case: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The judge determined that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have no consequence on climate commitments. The incoming administration subsequently revoked the licence the Tories had granted. Currently, this victory faces being overturned by an foreign court answering to exclusively the entities petitioning it.

In August, a corporate entity whose final controllers are located in the tax haven filed a lawsuit versus the UK government. Recently a dispute settlement body in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has no idea how much this might be. Who is acting on its behalf in opposition to the UK administration? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a international entity contests it through an unaccountable private court, and a sitting MP acts on its behalf.

A Sanctions Case

Simultaneously that the court on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the penalties the UK imposed on him after the war in Ukraine. He has already filed a claim against another European state on these grounds, seeking $16bn: half that government’s yearly income. Among the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists argue that the EU’s hesitation in using frozen Russian assets as collateral for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over sovereign states may be obstructing the money Ukraine urgently requires.

Misleading Claims and Mounting Risks

Politicians promised that such things were not possible. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An adviser on this issue described critics of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries had to worry about such legal actions. Cautionary notes that “as corporations begin to understand the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. In the current period, energy and extraction companies have initiated a unprecedented number of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – government attempts to halt climate breakdown. Firms have to date won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP