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How do you perceive our system of government functions? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that was how it once functioned. No longer.

The Advent of Secret Courts

In the modern era, international firms, and the billionaires that control them, have the power to sue nation states for the policies they pass, at private courts composed of corporate lawyers. These proceedings are held away from public scrutiny. Differing from national judiciaries, these panels provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, or even businesses operating from this country. They are open solely for corporations registered abroad.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, even billions.

These awards represent not actual losses but money the arbitrators decide the company would perhaps have made. The government could be forced to abandon its policy. It becomes deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being brought, as corporations learn from each other, and hedge funds fund legal actions in exchange for a cut of the settlements. The consequence? National sovereignty and democratic governance are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the choices made by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of total confidentiality – inside international trade agreements.

A Real-World Instance: The UK Coalmine

Twelve months ago, activists secured a significant win at the high court. The presiding officer found that plans to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The new government then withdrew the permission the previous administration had granted. Now, this success could be compromised by an offshore tribunal accountable to no one but the corporations petitioning it.

Last August, a corporate entity whose ultimate owners are located in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a tribunal in the United States was set up to consider the case.

This firm is suing the UK for the money it might have made if the mine had been permitted to proceed. We have no idea how much this might be. Which individual is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The government passes a law, the national judiciary upholds it, then a international entity disputes it through an undemocratic private court, and a elected official represents its behalf.

The Russian Challenge

On the same day that the panel on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case to date, but it seems likely that he may employ the ISDS mechanism to challenge the restrictions the UK enacted against him after the war in Ukraine. He has initiated proceedings against Luxembourg on these grounds, demanding sixteen billion dollars: an amount representing half nation's yearly income. Included in the counsel on his side? Cherie Blair, married to the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Growing Risks

Politicians promised that such things wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all these agreements, told us: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this topic accused critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “once firms grasp the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That warning is now a reality. This year, energy and mining firms have lodged a historic level of cases against nations rich and poor, contesting – like the example of the Whitehaven project – government attempts to halt climate breakdown. Companies have thus far won $114bn via ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP