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How do you reckon our system of government works? Perhaps similar to this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. The law are enforced by the courts. That's it. Yet, that was how it once functioned. Those days are over.

The Rise of Offshore Tribunals

In the modern era, overseas companies, and the wealthy individuals behind them, can sue nation states for the regulations they pass, at offshore tribunals composed of business advocates. These proceedings are conducted in secret. Unlike our courts, these tribunals allow no avenue for appeal or judicial review. The general public are unable to file a case to them, nor can our government, including enterprises headquartered in this country. They are open only to businesses registered abroad.

If a tribunal finds that a law or policy might diminish the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not tangible damages but funds the arbitrators decide the company would perhaps have made. The government might be compelled to rescind the measure. It will be deterred from enacting future policies of a similar nature, for fear of facing litigation.

A System Growing Exponentially

Unprecedented levels of cases are being initiated, as firms take cues from each other, and private equity bankroll lawsuits in exchange for a cut of the settlements. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the choices taken by legislatures is that this clause has been incorporated – without public consent, and typically amid a climate of extreme secrecy – within international trade agreements.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The justice ruled that schemes to dig the first deep coalmine in the UK for three decades, in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had no consequence on climate commitments. The incoming administration subsequently revoked the consent the Tories had approved. Now, this success faces being overturned by an offshore tribunal answering to only the corporations petitioning it.

Last August, a company whose beneficial owners reside in the tax haven initiated proceedings against the UK government. Last week a tribunal in Washington DC was established to hear it.

The claimant is suing the UK for the money it would have generated if the mine had received permission to proceed. Citizens have little idea how much this sum represents. Who is acting on its behalf challenging the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government enacts a policy, the domestic court validates it, then a overseas corporation contests it through an secretive private court, and a elected official acts on its behalf.

The Russian Case

Concurrently that the tribunal on the coal mine dispute was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case at present, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK levied against him following the invasion of Ukraine. He has already initiated proceedings against a small nation on these grounds, demanding $16bn: an amount representing half state's yearly income. Among the counsel representing him there? a prominent lawyer, married to the ex-UK leader.

Trade specialists believe that the EU’s hesitation in using frozen state funds as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states might be preventing the money Ukraine urgently requires.

Empty Promises and Growing Threats

The public was told that these events wouldn’t happen. Previously, a senior politician, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” An adviser on this issue described critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “as corporations begin to understand the authority bestowed upon them, they will shift their focus from the weak nations to the strong ones” were greeted by general mockery.

That warning is now a reality. In the current period, energy and extraction companies have lodged a historic level of suits against nations both wealthy and developing, challenging – similar to the Whitehaven project – state efforts to halt global warming. Firms have thus far won $114bn through ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP