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What is your reckon our system of government works? Perhaps something like this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. That's it. Yet, that was how it operated in the past. Not anymore.

The Emergence of Offshore Tribunals

Today, overseas companies, or the billionaires behind them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels staffed by business advocates. These proceedings are held in secret. Differing from national judiciaries, these bodies allow no right of appeal or legal review. The general public cannot take a case to them, just as our government, including companies headquartered in this country. Access is granted solely for corporations operating from foreign soil.

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

These awards represent not actual losses but compensation the arbitrators determine the company might otherwise have made. The administration could be forced to abandon its policy. It will be deterred from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being initiated, as firms learn from each other, and private equity finance suits in exchange for a cut of the settlements. The result? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the rulings made by legislatures is that this stipulation has been written – absent public approval, and typically amid conditions of total confidentiality – within trade treaties.

A Specific Example: The Cumbrian Coal Mine

Last year, activists won a great victory at the high court. The judge determined that plans to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no impact on our carbon budgets. The new government subsequently revoked the licence the former government had granted. Currently, this legal outcome could be compromised by an foreign court answering to exclusively the companies filing the suit.

In August, a firm whose final controllers are located in the tax haven initiated proceedings against the UK government. The previous week a tribunal in Washington DC was established to consider the case.

The claimant is suing the UK for the profits it could have earned if the mine had received permission to proceed. The public has no clear indication how much this might be. Who is acting on its behalf challenging the state? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a overseas corporation contests it through an secretive private court, and a member of our parliament represents its behalf.

An Oligarch's Case

On the same day that the panel on the coal mine dispute was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case to date, but it is highly possible that he will utilise the arbitration process to challenge the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg for this reason, demanding sixteen billion dollars: half that state's annual revenue. Among the counsel on his side? the wife of a former prime minister, married to the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

False Assurances and Growing Costs

We were assured that these events could not occur. In 2014, a government leader, advocating for the most significant and hazardous of all such treaties, declared: “The UK has signed trade agreement after trade deal and we have never seen a issue in the past.” A consultant on this issue described campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Predictions that “once firms begin to understand the influence bestowed upon them, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat has come to pass. This year, energy and mining firms have lodged a record number of suits against nations rich and poor, opposing – similar to the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have so far won $114bn via ISDS, of which energy giants have obtained $84bn. That represents the combined GDP