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What is your perceive our system of government works? Maybe along the lines of this. We elect MPs. They legislate on bills. When a majority is obtained, the bills become law. Statutes is maintained by the courts. Simple as that. However, that’s how it operated in the past. Not anymore.

The Rise of Offshore Tribunals

In the modern era, international firms, or the wealthy individuals behind them, can sue nation states for the laws they pass, at offshore tribunals composed of business advocates. Such disputes are held in secret. Unlike our courts, these bodies grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, including enterprises operating from this country. They are open solely for businesses based overseas.

When a secret court rules that a legislative action might diminish the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These awards represent not tangible damages but compensation the arbitrators determine the company would perhaps have made. The state might be compelled to abandon its policy. It is hesitant to introducing similar legislation of a similar nature, for fear of facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as corporations take cues from each other, and private equity bankroll lawsuits in return for a cut of the settlements. The outcome? National sovereignty and democracy are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the decisions taken by parliaments is that this provision has been incorporated – absent public approval, and typically amid conditions of extreme secrecy – within trade treaties.

A Real-World Example: The UK Coal Mine

Last year, a conservation group won a great victory at the senior court. The justice found that proposals to dig the first new deep coal mine in the UK for 30 years, in Cumbria, were wrongly permitted by the previous government, which had endorsed the questionable argument that the mine would have zero effect on our carbon budgets. The new government later cancelled the permission the Tories had approved. Today, this victory could be compromised by an offshore tribunal accountable to no one but the corporations filing the suit.

In August, a company whose ultimate owners are located in the Cayman Islands initiated proceedings challenging the UK government. The previous week a tribunal in Washington DC was set up to hear it.

The company is litigating against the UK for the money it might have made if the mine had been permitted to proceed. We have no idea how much this might be. Who is serving as its counsel against the British government? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a international entity challenges it through an undemocratic offshore tribunal, and a elected official works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case to date, but it is highly possible that he may employ the ISDS mechanism to fight the penalties the UK enacted against him following the invasion of Ukraine. He has previously started suing another European state with similar intent, demanding $16bn: an amount representing half government’s annual revenue. Part of the legal team acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

Empty Promises and Growing Risks

We were assured that such things wouldn’t happen. Previously, a government leader, promoting the largest and riskiest of all such treaties, told us: “Britain has agreed to trade deal after trade deal and there has not been a problem in the past.” An adviser on this issue described activists of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “once firms begin to understand the authority they now possess, they will turn their attention from the poorer states to the strong ones” were dismissed with general mockery.

That warning is now a reality. In the current period, energy and mining firms have initiated a record number of suits against nations rich and poor, challenging – similar to the Whitehaven project – government attempts to stop environmental catastrophe. Companies have to date won $114bn via ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP