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What is your understand our system of government works? Maybe something like this. The public votes for MPs. They vote on bills. When a majority is secured, the bills pass into law. Statutes is upheld by the courts. Simple as that. Yet, that used to be how it used to work. Not anymore.

The Emergence of Secret Tribunals

Nowadays, international firms, or the wealthy individuals that control them, can sue nation states for the policies they pass, at offshore tribunals composed of corporate lawyers. Such disputes take place behind closed doors. Differing from national judiciaries, these tribunals provide no right of appeal or legal review. You or I are unable to file a case to them, nor can our government, or even companies based in this country. The door is open solely for corporations registered abroad.

When a secret court rules that a law or policy may compromise the corporation’s expected profits, it can award compensation of vast sums, even billions.

This compensation are based not on tangible damages but compensation the panel members decide the company would perhaps have made. The state might be compelled to drop the legislation. It will be discouraged from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being brought, as companies take cues from each other, and investment funds finance suits in exchange for a portion of the awards. The result? Sovereignty and popular rule are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the choices taken by elected bodies is that this stipulation has been inserted – without public consent, and typically amid an atmosphere of profound opacity – within trade treaties.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the senior court. The judge ruled that plans to dig the first deep coalmine in the UK for 30 years, in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine could have no impact on our carbon budgets. The Labour government then withdrew the consent the former government had issued. Today, this victory could be compromised by an offshore tribunal reporting to only the entities filing the suit.

During August, a corporate entity whose final controllers reside in the offshore financial centre initiated proceedings against the UK government. Last week a arbitration panel in Washington DC was established to hear it.

This firm is litigating against 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 could amount to. What legal team is representing it challenging the British government? An elected representative, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The state makes a decision, the domestic court supports it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

A Sanctions Challenge

On the same day that the court on the coal mine dispute was convened, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case so far, but it is highly possible that he may employ the ISDS mechanism to challenge the restrictions the UK levied against him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg on these grounds, claiming sixteen billion dollars: half that state's yearly income. Among the legal team acting for him in that case? a prominent lawyer, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in leveraging immobilised state funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations could be blocking the money Ukraine critically depends on.

False Assurances and Growing Risks

We were assured that these events wouldn’t happen. Previously, a government leader, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” A consultant on this topic described critics of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Predictions that “once firms grasp the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with general mockery.

That warning is now a reality. This year, oil and gas and resource corporations have initiated a unprecedented number of suits against nations both wealthy and developing, opposing – as in the case of the UK mine – official measures to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP