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Can you understand our system of government works? It could be along the lines of this. Citizens choose MPs. They vote on bills. When a majority is secured, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that’s how it used to work. Not anymore.

The Emergence of Offshore Tribunals

In the modern era, overseas companies, or the oligarchs behind them, have the power to sue governments for the regulations they pass, at private courts made up of corporate lawyers. The cases are held in secret. In contrast to domestic courts, these panels provide no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises operating from this country. The door is open only to businesses registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These awards represent not actual losses but money the arbitrators determine the company could potentially have made. The state might be compelled to abandon its policy. It is hesitant to passing future laws in that area, for fear of facing litigation.

A System Running Rampant

Record numbers of cases are being brought, as firms learn from each other, and hedge funds bankroll lawsuits in exchange for a cut of the settlements. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the choices made by elected bodies is that this clause has been written – absent public approval, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Real-World Instance: The Whitehaven Coalmine

Twelve months ago, a conservation group secured a significant win at the High Court. The judge ruled that plans to excavate the first new deep coal mine in the UK for three decades, in northwest England, had been wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had zero effect on climate commitments. The Labour government later cancelled the permission the former government had granted. Currently, this victory is under threat by an foreign court answering to only the companies bringing the case.

During August, a firm whose final controllers reside in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in the US capital was established to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. We have no idea how much this could amount to. Who is acting on its behalf challenging the British government? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The state makes a decision, the national judiciary validates it, then a foreign company challenges it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the mining lawsuit was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case so far, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against a small nation on these grounds, claiming sixteen billion dollars: half that state's annual revenue. Included in the lawyers representing him there? Cherie Blair, spouse of the former British prime minister.

Trade specialists contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over sovereign states may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Escalating Threats

We were assured that these events were not possible. In 2014, a senior politician, promoting the largest and riskiest of all such treaties, declared: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” An expert on this matter labelled campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations had to worry about such legal actions. Cautionary notes that “once firms begin to understand the authority they now possess, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That warning has now materialised. This year, fossil fuel and extraction companies have filed a record number of cases against nations across the economic spectrum, challenging – similar to the Whitehaven project – state efforts to halt global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP