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How do you understand our system of government functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. That's it. Yet, that’s how it operated in the past. Those days are over.

The Emergence of Secret Arbitration Panels

In the modern era, overseas companies, along with the billionaires behind them, have the power to sue elected administrations for the policies they pass, at private courts staffed by business advocates. The cases are held away from public scrutiny. In contrast to domestic courts, these tribunals grant no right of appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even businesses operating from this country. Access is granted only to entities registered abroad.

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

These sums constitute not tangible damages but money the arbitrators decide the company would perhaps have made. The state may have to rescind the measure. It is hesitant to enacting future policies of a similar nature, worried about facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being filed, as companies take cues from each other, and private equity finance suits for a share of a share of the awards. The consequence? Sovereignty and democracy are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the decisions enacted by elected bodies is that this provision has been written – without public consent, and often in a climate of profound opacity – inside bilateral investment treaties.

A Real-World Example: The UK Coalmine

Last year, a conservation group secured a significant win at the High Court. The justice ruled that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The new government subsequently revoked the permission the previous administration had granted. Currently, this success is under threat by an offshore tribunal answering to only the entities bringing the case.

During August, a corporate entity whose beneficial owners are based in the tax haven lodged a claim versus the UK government. Last week a tribunal in Washington DC was established to adjudicate on it.

The company is seeking compensation from the UK for the money it would have generated if the mine had been permitted to commence operations. We have no idea how much this sum represents. Which individual is serving as its counsel challenging the UK administration? An elected representative, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The state makes a decision, the domestic court upholds it, then a international entity contests it through an secretive offshore tribunal, and a elected official acts on its behalf.

A Sanctions Challenge

On the same day that the court on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it seems likely that he will utilise the tribunal to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has already started suing a small nation on these grounds, claiming a colossal sum: an amount representing half government’s yearly income. Included in the legal team acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Trade specialists argue that the EU’s procrastination in leveraging immobilised state funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments might be preventing the finance Ukraine urgently requires.

Misleading Claims and Mounting Costs

We were assured that these events could not occur. Previously, a former prime minister, promoting the largest and riskiest of all these agreements, told us: “The UK has signed investment treaty upon trade deal and there has not been a case in the past.” A consultant on this topic labelled critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations should be concerned by such legal actions. Warnings that “once firms grasp the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were met with general mockery.

That prediction is now a reality. Recently, oil and gas and mining firms have lodged a record number of suits against nations rich and poor, opposing – as in the case of the Whitehaven project – state efforts to halt environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP