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How do you understand our system of government works? Perhaps along the lines of this. We elect MPs. They vote on bills. If a majority is obtained, the bills pass into law. The law are enforced by the courts. End of story. However, that used to be how it operated in the past. No longer.

The Emergence of Offshore Tribunals

In the modern era, international firms, and the wealthy individuals who own them, can sue elected administrations for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings are held in secret. In contrast to domestic courts, these bodies provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even enterprises headquartered in this country. The door is open solely for corporations based overseas.

If a tribunal finds that a legislative action could harm the corporation’s projected profits, it may order compensation of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but money the arbitrators decide the company would perhaps have made. The administration might be compelled to drop the legislation. It will be discouraged from passing future laws in that area, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of cases are being brought, as firms take cues from each other, and private equity finance suits in return for a portion of the settlements. The result? Democratic sovereignty and popular rule are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices made by elected bodies is that this clause has been written – without public consent, and typically amid an atmosphere of extreme secrecy – into trade treaties.

A Real-World Example: The Whitehaven Coal Mine

Twelve months ago, activists achieved a major legal triumph at the high court. The justice ruled that plans to open the first new deep coal mine in the UK for three decades, in northwest England, were wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the permission the previous administration had issued. Today, this victory is under threat by an offshore tribunal accountable to exclusively the companies bringing the case.

In August, a corporate entity whose beneficial owners are located in the Cayman Islands filed a lawsuit challenging the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. We have no idea how much this sum represents. Which individual is acting on its behalf challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary supports it, then a international entity contests it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Challenge

On the same day that the court on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the penalties the UK levied against him following the war in Ukraine. He has already started suing a small nation with similar intent, demanding a colossal sum: an amount representing half nation's yearly income. Included in the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments may be obstructing the finance Ukraine urgently requires.

Empty Promises and Escalating Costs

Politicians promised that these scenarios were not possible. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement upon trade deal and there has never been a problem in the past.” A consultant on this topic accused campaigners of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about ISDS claims. Warnings that “when companies grasp the authority they now possess, they will shift their focus from the poorer states to the developed economies” were met with widespread derision.

That warning is now a reality. This year, oil and gas and resource corporations have initiated a record number of suits against nations rich and poor, opposing – like the example of the Whitehaven project – government attempts to stop climate breakdown. Corporations have to date won $114bn by using ISDS, of which oil majors have obtained $84bn. That represents the combined GDP