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How do you perceive our political system operates? Maybe similar to this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills become law. Statutes is upheld by the courts. Simple as that. Yet, that was how it operated in the past. Not anymore.

The Advent of Secret Courts

Nowadays, overseas companies, along with the billionaires that control them, are able to litigate against nation states for the regulations they pass, at private courts composed of business advocates. The cases take place behind closed doors. Differing from national judiciaries, these bodies allow no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. The door is open solely for entities based overseas.

If a tribunal finds that a legislative action could harm the corporation’s projected profits, it may order compensation of vast sums, running into billions.

This compensation represent not tangible damages but funds the arbitrators conclude the company would perhaps have made. The state could be forced to drop the legislation. It is deterred from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as companies take cues from each other, and private equity finance suits in exchange for a cut of the awards. The result? Democratic sovereignty and democratic governance are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the decisions enacted by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under an atmosphere of profound opacity – inside international trade agreements.

A Real-World Case: The Whitehaven Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the high court. The justice ruled that schemes to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The Labour government later cancelled the permission the Tories had approved. Today, this legal outcome faces being overturned by an offshore tribunal reporting to no one but the entities bringing the case.

In August, a company whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a arbitration panel in the United States was established to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to go ahead. Citizens have no clear indication how much this sum represents. Who is serving as its counsel against the state? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The government enacts a policy, the national judiciary upholds it, then a international entity disputes it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Case

On the same day that the panel on the mining lawsuit was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to challenge the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation for this reason, claiming sixteen billion dollars: an amount representing half government’s annual revenue. Among the legal team acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists contend that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over sovereign states might be preventing the funds Ukraine urgently requires.

False Assurances and Mounting Costs

Politicians promised that such things wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all these agreements, told us: “Britain has agreed to investment treaty upon trade deal and we have never seen a issue in the past.” An expert on this topic labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear these lawsuits. Predictions that “as corporations start to realise the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.

That threat is now a reality. This year, fossil fuel and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, challenging – like the example of the Whitehaven project – government attempts to halt global warming. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained $84bn. That represents the combined GDP