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Can you reckon our political system works? Maybe along the lines of this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills become law. Legislation are enforced by the courts. That's it. However, that was how it operated in the past. Not anymore.

The Emergence of Secret Courts

Nowadays, overseas companies, along with the oligarchs that control them, have the power to sue governments for the laws they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place behind closed doors. Unlike our courts, these panels provide no right of appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, including businesses operating from this country. The door is open only to entities based overseas.

When a secret court finds that a government measure may compromise the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

This compensation represent not actual losses but compensation the arbitrators conclude the company would perhaps have made. The government may have to rescind the measure. It will be discouraged from passing future laws in that area, worried about facing litigation.

A Mechanism Running Rampant

Historically high figures of cases are being filed, as corporations observe each other, and hedge funds finance suits in exchange for a cut of the awards. The result? Democratic sovereignty and popular rule are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the choices made by parliaments is that this stipulation has been incorporated – absent public approval, and typically amid a climate of total confidentiality – inside international trade agreements.

A Specific Example: The UK Coalmine

Last year, a conservation group achieved a major legal triumph at the senior court. The judge found that plans to dig the first major coal mine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine could have no impact on national carbon targets. The new government subsequently revoked the permission the previous administration had granted. Today, this success is under threat by an secret arbitration panel reporting to exclusively the companies bringing the case.

Last August, a corporate entity whose beneficial owners are located in the tax haven lodged a claim challenging the UK government. Last week a tribunal in Washington DC was established to adjudicate on it.

This firm is suing the UK for the money it would have generated if the mine had been permitted to go ahead. The public has little idea how much this might be. What legal team is serving as its counsel challenging the state? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Geoffrey Cox. The government makes a decision, the high court validates it, then a international entity contests it through an undemocratic private court, and a sitting MP works for its behalf.

An Oligarch's Case

Concurrently that the court on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to challenge the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation with similar intent, seeking sixteen billion dollars: equivalent to half of state's annual revenue. Part of the lawyers representing him there? Cherie Blair, spouse of the ex-UK leader.

Legal experts argue that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the funds Ukraine critically depends on.

Empty Promises and Escalating Risks

The public was told that these scenarios were not possible. Years ago, a government leader, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An expert on this issue labelled activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states needed to fear ISDS claims. Predictions that “once firms grasp the influence bestowed upon them, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That prediction has come to pass. Recently, fossil fuel and resource corporations have filed a unprecedented number of cases against nations rich and poor, opposing – like the example of the Whitehaven project – state efforts to stop climate breakdown. Corporations have so far won vast sums through ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP