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What is your reckon our system of government functions? It could be along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. That's it. Well, that’s how it operated in the past. Not anymore.

The Emergence of Offshore Arbitration Panels

Nowadays, international firms, or the billionaires who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals composed of corporate lawyers. These proceedings take place behind closed doors. Differing from national judiciaries, these panels provide no avenue for appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even enterprises operating from this country. The door is open only to entities operating from foreign soil.

When a secret court rules that a law or policy might diminish the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These awards constitute not tangible damages but funds the arbitrators decide the company could potentially have made. The administration might be compelled to drop the legislation. It will be deterred from passing future laws in that area, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being brought, as firms learn from each other, and private equity fund legal actions in return for a portion of the awards. The consequence? Sovereignty and democratic governance are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the decisions enacted by legislatures is that this clause has been written – without democratic mandate, and typically amid a climate of total confidentiality – within bilateral investment treaties.

A Real-World Case: The UK Coal Mine

Twelve months ago, activists won a great victory at the high court. The judge determined that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have no impact on climate commitments. The Labour government later cancelled the licence the Tories had approved. Today, this legal outcome is under threat by an foreign court accountable to no one but the entities petitioning it.

In August, a company whose beneficial owners are based in the tax haven lodged a claim against the UK government. Recently a tribunal in the United States was convened to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had received permission to commence operations. The public has little idea how much this could amount to. Which individual is serving as its counsel against the British government? A sitting MP, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case to date, but it is highly possible that he may employ the tribunal to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has started suing a small nation with similar intent, seeking a colossal sum: equivalent to half of state's yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Trade specialists argue that the EU’s delay in using frozen oligarchs' funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over elected governments might be preventing the money Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that these events wouldn’t happen. Previously, a government leader, championing the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this topic accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were met with general mockery.

That threat is now a reality. Recently, oil and gas and mining firms have initiated a unprecedented number of suits against nations across the economic spectrum, contesting – like the example of the Whitehaven project – state efforts to stop global warming. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP