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How do you perceive our political system operates? It could be along the lines of this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills pass into law. Legislation are enforced by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Rise of Secret Tribunals

In the modern era, overseas companies, or the wealthy individuals who own them, can sue nation states for the regulations they pass, at offshore tribunals composed of business advocates. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no right of appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, including enterprises headquartered in this country. The door is open only to businesses registered abroad.

When a secret court rules that a legislative action may compromise the corporation’s projected profits, it has the power to grant damages of vast sums, potentially billions.

This compensation are based not on real financial harm but compensation the tribunal officials conclude the company could potentially have made. The administration might be compelled to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, due to the risk of being sued.

A System Running Rampant

Historically high figures of disputes are being initiated, as companies take cues from each other, and private equity bankroll lawsuits for a share of a cut of the awards. The outcome? National sovereignty and democracy are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the rulings enacted by elected bodies is that this provision has been incorporated – without democratic mandate, and typically amid a climate of total confidentiality – within bilateral investment treaties.

A Concrete Example: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The judge ruled that schemes to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine would have had zero effect on national carbon targets. The new government subsequently revoked the consent the previous administration had granted. Today, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the corporations filing the suit.

Last August, a corporate entity whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in the United States was set up to consider the case.

The claimant is litigating against the UK for the profits it might have made if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Which individual is serving as its counsel in opposition to the state? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The state passes a law, the domestic court upholds it, then a international entity challenges it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Simultaneously that the tribunal on the mining lawsuit was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows scarce of the case at present, but it is highly possible that he may employ the arbitration process to challenge the sanctions the UK levied against him after the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, demanding $16bn: equivalent to half of state's yearly income. Included in the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts argue that the EU’s delay in using frozen state funds as guarantee for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. Previously, a former prime minister, championing the largest and riskiest of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” An adviser on this topic labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries had to worry about these lawsuits. Warnings that “once firms start to realise the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction is now a reality. In the current period, fossil fuel and mining firms have initiated a historic level of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to prevent global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP