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What is your reckon our system of government works? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law is upheld by the courts. That's it. However, that used to be how it once functioned. No longer.

The Advent of Secret Tribunals

Nowadays, foreign corporations, along with the billionaires who own them, have the power to sue elected administrations for the regulations they pass, at offshore tribunals composed of commercial attorneys. The cases take place behind closed doors. Differing from national judiciaries, these bodies provide no right of appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, or even enterprises based in this country. They are open solely for businesses based overseas.

Should an arbitration panel determines that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of vast sums, running into billions.

These awards represent not real financial harm but money the panel members determine the company would perhaps have made. The government may have to drop the legislation. It is deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as firms take cues from each other, and investment funds fund legal actions in return for a portion of the awards. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the choices taken by parliaments is that this stipulation has been inserted – without public consent, and typically amid a climate of profound opacity – into international trade agreements.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The justice ruled that proposals to dig the first deep coalmine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the licence the former government had granted. Currently, this victory is under threat by an offshore tribunal reporting to only the entities filing the suit.

Last August, a company whose final controllers reside in the tax haven lodged a claim against the UK government. Recently a arbitration panel in the United States was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to commence operations. We have no idea how much this could amount to. Who is serving as its counsel challenging the state? An elected representative, and former attorney-general in the previous government, the noted patriot Geoffrey Cox. The administration makes a decision, the domestic court upholds it, then a foreign company disputes it through an secretive private court, and a elected official acts on its behalf.

The Russian Case

Concurrently that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case so far, but it is highly possible that he will utilise the tribunal to contest the penalties the UK enacted against him following the invasion of Ukraine. He has started suing Luxembourg on these grounds, seeking sixteen billion dollars: equivalent to half of government’s yearly budget. Part of the counsel on his side? a prominent lawyer, married to the previous PM.

Trade specialists believe that the EU’s procrastination in using frozen state funds as security for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

False Assurances and Escalating Threats

We were assured that these scenarios were not possible. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, declared: “Britain has agreed to investment treaty after trade deal and there has never been a case in the past.” An expert on this issue described critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms start to realise the authority they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were met with widespread derision.

That warning has now materialised. In the current period, energy and mining firms have lodged a historic level of suits against nations across the economic spectrum, opposing – like the example of the UK mine – state efforts to halt climate breakdown. Companies have thus far won $114bn via ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP