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How do you perceive our system of government works? Perhaps along the lines of this. We elect MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Rise of Offshore Tribunals

In the modern era, foreign corporations, and the wealthy individuals that control them, can sue governments for the policies they pass, at offshore tribunals made up of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or judicial review. You or I are unable to file a case to them, nor can our government, or even enterprises based in this country. They are open solely for businesses based overseas.

If a tribunal finds that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, running into billions.

This compensation represent not real financial harm but compensation the panel members conclude the company would perhaps have made. The government could be forced to drop the legislation. It becomes hesitant to enacting future policies in that area, worried about facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being filed, as companies observe each other, and private equity fund legal actions in return for a portion of the awards. The outcome? Democratic sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the rulings enacted by parliaments is that this clause has been written – without public consent, and often in conditions of total confidentiality – within international trade agreements.

A Specific Case: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the high court. The justice determined that proposals to excavate the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the licence the Tories had granted. Currently, this victory could be compromised by an secret arbitration panel accountable to no one but the entities filing the suit.

During August, a corporate entity whose final controllers are based in the tax haven filed a lawsuit versus the UK government. Last week a tribunal in the United States was convened to adjudicate on it.

The company is suing the UK for the revenue it could have earned if the mine had been permitted to commence operations. The public has little idea how much this might be. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The administration makes a decision, the high court upholds it, then a foreign company challenges it through an undemocratic private court, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Concurrently that the court on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know scarce of the case to date, but it appears probable that he will utilise the tribunal to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has initiated proceedings against Luxembourg on these grounds, claiming $16bn: equivalent to half of government’s annual revenue. Among the lawyers on his side? a prominent lawyer, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized Russian assets as security for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that such things could not occur. In 2014, a former prime minister, promoting the biggest and most dangerous of all these agreements, told us: “The UK has signed investment treaty after trade deal and there has never been a issue in the past.” An expert on this matter described activists of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations should be concerned by ISDS claims. Warnings that “when companies begin to understand the influence bestowed upon them, they will shift their focus from the poorer states to the wealthy nations” were met with widespread derision.

That prediction is now a reality. Recently, fossil fuel and mining firms have lodged a record number of claims against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have thus far won $114bn via ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP