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What is your reckon our system of government works? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation are enforced by the courts. End of story. However, that was how it used to work. Those days are over.

The Emergence of Offshore Courts

Nowadays, overseas companies, or the billionaires that control them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place away from public scrutiny. In contrast to domestic courts, these bodies allow no avenue for appeal or judicial review. The general public are barred from bringing a case to them, and neither can our government, or even businesses based in this country. Access is granted exclusively to corporations operating from foreign soil.

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

These awards are based not on actual losses but compensation the arbitrators determine the company could potentially have made. The government may have to rescind the measure. It becomes deterred from enacting future policies of a similar nature, worried about being sued.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being initiated, as firms take cues from each other, and hedge funds finance suits in return for a portion of the settlements. The outcome? Democratic sovereignty and democratic governance are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the decisions made by parliaments is that this provision has been written – without public consent, and typically amid a climate of total confidentiality – inside international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

Last year, environmental campaigners secured a significant win at the High Court. The presiding officer ruled that proposals to excavate the first major coal mine in the UK for three decades, in Cumbria, were found to be wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The new government then withdrew the licence the Tories had issued. Now, this victory is under threat by an secret arbitration panel reporting to no one but the companies petitioning it.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was convened to adjudicate on it.

This firm is litigating against the UK for the profits it would have generated if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Which individual is representing it in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a foreign company contests it through an undemocratic arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coal mine dispute was established, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case so far, but it appears probable that he may employ the arbitration process to contest the penalties the UK levied against him after the war in Ukraine. He has already initiated proceedings against Luxembourg for this reason, seeking sixteen billion dollars: an amount representing half government’s yearly budget. Part of the counsel acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars argue that the EU’s delay in using frozen Russian assets as security for its aid for Ukraine arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that such things could not occur. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” A consultant on this topic described critics of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about such legal actions. Cautionary notes that “once firms start to realise the power they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with general mockery.

That threat has now materialised. This year, energy and mining firms have initiated a record number of claims against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – official measures to prevent global warming. Corporations have so far won vast sums via ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP