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How do you understand our system of government works? Maybe along the lines of this. We elect MPs. They vote on bills. When a majority is obtained, the bills pass into law. Statutes is upheld by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Today, international firms, along with the wealthy individuals that control them, can sue elected administrations for the regulations they pass, at private courts staffed by business advocates. Such disputes are held in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. You or I cannot take a case to them, and neither can our government, including enterprises headquartered in this country. They are open only to entities based overseas.

When a secret court finds that a government measure might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

This compensation are based not on tangible damages but funds the panel members determine the company might otherwise have made. The government could be forced to drop the legislation. It will be deterred from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being brought, as companies take cues from each other, and investment funds fund legal actions in return for a share of the takings. The outcome? Democratic sovereignty and popular rule are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the decisions taken by legislatures is that this clause has been written – without public consent, and frequently under a climate of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The justice found that plans to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on climate commitments. The incoming administration then withdrew the permission the previous administration had granted. Today, this success is under threat by an offshore tribunal accountable to exclusively the companies petitioning it.

During August, a corporate entity whose beneficial owners reside in the offshore financial centre filed a lawsuit challenging the UK government. Last week a tribunal in Washington DC was convened to hear it.

This firm is litigating against the UK for the money it could have earned if the mine had received permission to go ahead. We have no idea how much this sum represents. Who is representing it against the UK administration? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state passes a law, the high court validates it, then a foreign company contests it through an undemocratic private court, and a member of our parliament works for its behalf.

The Russian Case

On the same day that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case at present, but it appears probable that he will utilise the ISDS mechanism to contest the restrictions the UK imposed on him subsequent to the war in Ukraine. He has already initiated proceedings against Luxembourg on these grounds, seeking $16bn: equivalent to half of state's annual revenue. Included in the counsel on his side? the wife of a former prime minister, wife of the former British prime minister.

International law scholars believe that the EU’s hesitation in using frozen Russian assets as collateral for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states might be preventing the money Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that these scenarios wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all such treaties, declared: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” An expert on this matter described activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations start to realise the authority bestowed upon them, they will shift their focus from the weak nations to the strong ones” were dismissed with widespread derision.

That warning has come to pass. Recently, oil and gas and resource corporations have filed a record number of claims against nations rich and poor, opposing – similar to the UK mine – official measures to prevent environmental catastrophe. Companies have to date won $114bn via ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP