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How do you understand our system of government operates? Perhaps something like this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills become law. Statutes is maintained by the courts. Simple as that. Well, that was how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

Nowadays, foreign corporations, and the billionaires behind them, have the power to sue governments for the regulations they pass, at offshore tribunals staffed by commercial attorneys. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these tribunals allow no opportunity to appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even companies headquartered in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation represent not tangible damages but compensation the tribunal officials determine the company might otherwise have made. The administration may have to drop the legislation. It will be discouraged from enacting future policies of a similar nature, due to the risk of being sued.

A System Growing Exponentially

Historically high figures of legal actions are being brought, as firms learn from each other, and investment funds fund legal actions in return for a share of the settlements. The outcome? National sovereignty and democratic governance are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede a country's own laws and the decisions made by legislatures is that this clause has been incorporated – absent public approval, and often in conditions of extreme secrecy – within international trade agreements.

A Real-World Example: The Whitehaven Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The justice found that proposals to excavate the first deep coalmine in the UK for three decades, in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have zero effect on our carbon budgets. The incoming administration then withdrew the permission the Tories had approved. Currently, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the corporations bringing the case.

During August, a company whose final controllers are based in the offshore financial centre lodged a claim challenging the UK government. The previous week a arbitration panel in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to commence operations. The public has no idea how much this might be. Who is representing it in opposition to the state? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court validates it, then a overseas corporation challenges it through an secretive private court, and a member of our parliament represents its behalf.

A Sanctions Challenge

Concurrently that the court on the coal mine dispute was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case so far, but it seems likely that he will utilise the arbitration process to contest the restrictions the UK enacted against him following the war in Ukraine. He has already filed a claim against Luxembourg for this reason, seeking $16bn: equivalent to half of government’s yearly budget. Included in the legal team on his side? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states may be obstructing the finance Ukraine critically depends on.

False Assurances and Growing Costs

The public was told that these events could not occur. Years ago, a senior politician, advocating for the largest and riskiest of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” An expert on this matter accused critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message 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 turn their attention from the vulnerable countries to the strong ones” were greeted by general mockery.

That warning has now materialised. Recently, oil and gas and resource corporations have initiated a historic level of suits against nations across the economic spectrum, contesting – similar to the Whitehaven project – state efforts to halt climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP