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What is your perceive our system of government works? Maybe along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills become law. The law are enforced by the courts. End of story. However, that used to be how it used to work. Those days are over.

The Emergence of Secret Arbitration Panels

Today, overseas companies, or the billionaires who own them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of commercial attorneys. The cases are conducted behind closed doors. Unlike our courts, these bodies grant no right of appeal or legal review. You or I are unable to file a case to them, just as our government, including companies headquartered in this country. The door is open exclusively to entities registered abroad.

When a secret court rules that a legislative action might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions, even billions.

This compensation represent not real financial harm but compensation the tribunal officials conclude the company might otherwise have made. The administration could be forced to abandon its policy. It will be deterred from enacting future policies of a similar nature, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being initiated, as firms learn from each other, and investment funds bankroll lawsuits for a share of a cut of the awards. The outcome? Democratic sovereignty and democratic governance are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the decisions made by elected bodies is that this provision has been inserted – without democratic mandate, and typically amid conditions of total confidentiality – within trade treaties.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The judge ruled that plans to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have no consequence on our carbon budgets. The incoming administration then withdrew the permission the previous administration had approved. Currently, this success faces being overturned by an secret arbitration panel answering to no one but the companies petitioning it.

Last August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings against the UK government. Last week a dispute settlement body in the US capital was set up to hear it.

The claimant is suing the UK for the money it might have made if the mine had received permission to proceed. Citizens have little idea how much this could amount to. Who is representing it against the UK administration? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a international entity contests it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coal mine dispute was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he may employ the ISDS mechanism to challenge the restrictions the UK imposed on him following the invasion of Ukraine. He has already filed a claim against a small nation with similar intent, seeking $16bn: half that state's yearly income. Included in the counsel on his side? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists argue that the EU’s delay in leveraging immobilised state funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Mounting Risks

Politicians promised that these events wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all these agreements, stated: “Britain has agreed to investment treaty upon trade deal and there has not been a problem in the past.” A consultant on this topic described critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations needed to fear such legal actions. Warnings that “when companies grasp the authority they now possess, they will shift their focus from the weak nations to the developed economies” were greeted by general mockery.

That threat has come to pass. In the current period, fossil fuel and extraction companies have lodged a record number of claims against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent climate breakdown. Corporations have thus far won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP