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Can you perceive our system of government operates? It could be similar to this. The public votes for MPs. They vote on bills. When a majority is secured, the bills become law. Statutes is upheld by the courts. End of story. However, that’s how it operated in the past. No longer.

The Advent of Offshore Tribunals

In the modern era, overseas companies, and the wealthy individuals behind them, have the power to sue governments for the laws they pass, at private courts composed of business advocates. The cases are held in secret. Differing from national judiciaries, these bodies allow no avenue for appeal or judicial review. You or I are unable to file a case to them, just as our government, or even businesses based in this country. The door is open only to entities based overseas.

Should an arbitration panel finds that a law or policy could harm the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

These awards are based not on real financial harm but compensation the tribunal officials conclude the company could potentially have made. The state may have to rescind the measure. It will be deterred from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of legal actions are being filed, as firms take cues from each other, and hedge funds bankroll lawsuits in return for a cut of the settlements. The consequence? Sovereignty and popular rule are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the decisions taken by parliaments is that this clause has been written – without public consent, and frequently under conditions of total confidentiality – within bilateral investment treaties.

A Concrete Example: The Whitehaven Coalmine

Last year, activists secured a significant win at the High Court. The judge ruled that proposals to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have had zero effect on our carbon budgets. The new government later cancelled the licence the Tories had granted. Today, this victory faces being overturned by an offshore tribunal reporting to exclusively the companies filing the suit.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands initiated proceedings versus the UK government. The previous week a arbitration panel in the US capital was set up to hear it.

The company is suing the UK for the profits it would have generated if the mine had been permitted to go ahead. The public has no idea how much this could amount to. Which individual is representing it in opposition to the UK administration? An elected representative, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The state makes a decision, the domestic court validates it, then a international entity contests it through an undemocratic arbitration panel, and a elected official works for its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously initiated proceedings against Luxembourg for this reason, demanding $16bn: equivalent to half of state's yearly income. Included in the lawyers representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in utilising seized state funds as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Risks

Politicians promised that such things could not occur. In 2014, a former prime minister, advocating for the most significant and hazardous of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” An adviser on this topic labelled campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “when companies begin to understand the power bestowed upon them, they will shift their focus from the poorer states to the strong ones” were met with scepticism.

That warning has now materialised. In the current period, fossil fuel and mining firms have initiated a historic level of claims against nations rich and poor, challenging – as in the case of the Whitehaven project – government attempts to prevent climate breakdown. Firms have so far won vast sums by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP