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What is your understand our system of government functions? It could be something like this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that was how it operated in the past. Not anymore.

The Emergence of Secret Tribunals

Nowadays, overseas companies, along with the wealthy individuals who own them, can sue nation states for the laws they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are held behind closed doors. Unlike our courts, these panels allow no right of appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even companies based in this country. They are open solely for entities based overseas.

If a tribunal rules that a government measure might diminish the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, running into billions.

These awards are based not on real financial harm but compensation the arbitrators decide the company could potentially have made. The state might be compelled to abandon its policy. It will be deterred from introducing similar legislation of a similar nature, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being initiated, as corporations take cues from each other, and investment funds fund legal actions for a share of a cut of the awards. The result? Democratic sovereignty and democratic governance are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the decisions enacted by legislatures is that this provision has been incorporated – absent public approval, and often in a climate of profound opacity – within trade treaties.

A Concrete Example: The Cumbrian Coal Mine

A year ago, activists secured a significant win at the high court. The justice found that schemes to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on our carbon budgets. The new government subsequently revoked the consent the former government had issued. Currently, this victory is under threat by an secret arbitration panel reporting to no one but the companies filing the suit.

During August, a corporate entity whose final controllers are based in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

This firm is litigating against the UK for the revenue it could have earned if the mine had received permission to go ahead. Citizens have no clear indication how much this could amount to. Which individual is representing it in opposition to the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the national judiciary validates it, then a foreign company contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Challenge

Concurrently that the court on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case so far, but it seems likely that he may employ the tribunal to fight the sanctions the UK enacted against him subsequent to the Russian aggression. He has initiated proceedings against another European state on these grounds, claiming sixteen billion dollars: half that nation's yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s hesitation in utilising seized state funds as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that these events wouldn’t happen. Previously, a government leader, promoting the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty upon trade deal and we have never seen a case in the past.” An expert on this matter described activists of “scaremongering … in reality, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations had to worry about such legal actions. Warnings that “when companies grasp the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by widespread derision.

That warning has now materialised. This year, oil and gas and extraction companies have filed a historic level of claims against nations both wealthy and developing, challenging – similar to the Whitehaven project – state efforts to stop global warming. Firms have so far won $114bn through ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP