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Can you understand our system of government works? Perhaps along the lines of this. The public votes for MPs. They vote on bills. If a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that’s how it operated in the past. Those days are over.

The Emergence of Offshore Tribunals

Today, overseas companies, or the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels made up of business advocates. Such disputes are held in secret. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even companies based in this country. The door is open only to entities based overseas.

If a tribunal determines that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These awards constitute not tangible damages but funds the tribunal officials determine the company might otherwise have made. The government might be compelled to rescind the measure. It becomes discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as corporations observe each other, and investment funds finance suits in return for a portion of the settlements. The consequence? Democratic sovereignty and democracy are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the rulings taken by elected bodies is that this provision has been inserted – without democratic mandate, and frequently under conditions of extreme secrecy – within international trade agreements.

A Real-World Instance: The Whitehaven Coalmine

A year ago, a conservation group secured a significant win at the High Court. The judge determined that schemes to dig the first major coal mine in the UK for a generation, in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine would have had no impact on climate commitments. The incoming administration subsequently revoked the permission the Tories had approved. Now, this legal outcome faces being overturned by an offshore tribunal answering to no one but the entities petitioning it.

Last August, a company whose final controllers reside in the offshore financial centre initiated proceedings versus the UK government. The previous week a dispute settlement body in Washington DC was convened to hear it.

The claimant is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. Citizens have no idea how much this sum represents. What legal team is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the previous government, the noted patriot the MP. The government passes a law, the domestic court supports it, then a international entity disputes it through an unaccountable private court, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the mining lawsuit was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know nothing of the case so far, but it is highly possible that he’ll use the ISDS mechanism to challenge the restrictions the UK levied against him after the war in Ukraine. He has previously started suing Luxembourg for this reason, claiming sixteen billion dollars: half that state's annual revenue. Included in the lawyers on his side? a prominent lawyer, wife of the former British prime minister.

Legal experts argue that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its financial support package stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over sovereign states might be preventing the money Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that such things could not occur. In 2014, a government leader, advocating for the most significant and hazardous of all investment pacts, told us: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” An expert on this matter accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries needed to fear these lawsuits. Warnings that “as corporations begin to understand the authority they’ve been granted, they will turn their attention from the weak nations to the developed economies” were greeted by widespread derision.

That warning is now a reality. This year, energy and resource corporations have lodged a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to prevent global warming. Companies have so far won vast sums by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP