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How do you reckon our political system works? It could be similar to this. We elect MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. End of story. However, that’s how it used to work. No longer.

The Emergence of Secret Courts

In the modern era, foreign corporations, and the oligarchs who own them, have the power to sue elected administrations for the policies they pass, at private courts made up of corporate lawyers. The cases are held in secret. Differing from national judiciaries, these bodies provide no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, including companies headquartered in this country. Access is granted solely for businesses operating from foreign soil.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it may order compensation of vast sums, even billions.

These sums constitute not tangible damages but compensation the tribunal officials conclude the company could potentially have made. The government may have to drop the legislation. It is deterred from passing future laws of a similar nature, for fear of being sued.

A Mechanism Running Rampant

Record numbers of legal actions are being initiated, as corporations take cues from each other, and private equity finance suits for a share of a share of the takings. The result? Sovereignty and democratic governance are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the rulings made by parliaments is that this stipulation has been written – without democratic mandate, and often in an atmosphere of profound opacity – within bilateral investment treaties.

A Concrete Example: The Whitehaven Coalmine

Last year, environmental campaigners won a great victory at the High Court. The justice ruled that plans to open the first deep coalmine in the UK for a generation, in Cumbria, had been unlawfully approved by the outgoing administration, which had endorsed the bizarre claim that the mine could have no impact on national carbon targets. The incoming administration subsequently revoked the permission the previous administration had approved. Now, this success is under threat by an offshore tribunal reporting to no one but the companies filing the suit.

Last August, a firm whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. Last week a tribunal in the US capital was convened to hear it.

This firm is suing the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have no idea how much this might be. What legal team is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government enacts a policy, the national judiciary validates it, then a foreign company disputes it through an unaccountable arbitration panel, and a elected official represents its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case at present, but it seems likely that he may employ the arbitration process to fight the sanctions the UK levied against him following the war in Ukraine. He has filed a claim against Luxembourg for this reason, seeking $16bn: half that nation's yearly income. Among the legal team on his side? a prominent lawyer, married to the previous PM.

Legal experts argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over elected governments could be blocking the money Ukraine critically depends on.

Empty Promises and Growing Risks

The public was told that these events wouldn’t happen. In 2014, a senior politician, advocating for the largest and riskiest of all investment pacts, stated: “The UK has signed trade agreement upon trade deal and there has not been a issue in the past.” An expert on this matter labelled campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Warnings that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat has come to pass. In the current period, oil and gas and resource corporations have initiated a historic level of suits against nations rich and poor, opposing – as in the case of the Whitehaven project – official measures to prevent climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded the majority. That represents the combined GDP