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How do you understand our system of government operates? Maybe something like this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. That's it. Yet, that was how it once functioned. Those days are over.

The Emergence of Secret Tribunals

Today, international firms, and the oligarchs behind them, are able to litigate against elected administrations for the regulations they pass, at private courts made up of business advocates. The cases are conducted in secret. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even companies headquartered in this country. They are open exclusively to entities operating from foreign soil.

If a tribunal finds that a legislative action might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, even billions.

These sums constitute not tangible damages but funds the tribunal officials determine the company could potentially have made. The state may have to drop the legislation. It will be deterred from passing future laws in that area, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being filed, as companies learn from each other, and hedge funds bankroll lawsuits in return for a cut of the awards. The consequence? Sovereignty and democratic governance are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the rulings enacted by legislatures is that this clause has been incorporated – without public consent, and often in an atmosphere of extreme secrecy – inside international trade agreements.

A Real-World Case: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the senior court. The judge determined that plans to dig the first major coal mine in the UK for three decades, in northwest England, were illegally sanctioned 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 subsequently revoked the licence the former government had approved. Currently, this legal outcome could be compromised by an offshore tribunal accountable to only the companies bringing the case.

Last August, a firm whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in the United States was established to hear it.

The company is litigating against the UK for the profits it might have made if the mine had been allowed to go ahead. We have little idea how much this might be. What legal team is serving as its counsel against the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government enacts a policy, the high court validates it, then a international entity contests it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it is highly possible that he may employ the ISDS mechanism to contest the penalties the UK imposed on him after the Russian aggression. He has previously initiated proceedings against another European state on these grounds, seeking $16bn: half that state's yearly budget. Among the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists argue that the EU’s delay in using frozen state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over sovereign states might be preventing the money Ukraine critically depends on.

False Assurances and Growing Threats

We were assured that these scenarios wouldn’t happen. Previously, a senior politician, advocating for the most significant and hazardous of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An expert on this matter accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “when companies grasp the power they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by scepticism.

That threat has now materialised. Recently, energy and resource corporations have initiated a historic level of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Corporations have to date won $114bn by using ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP