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How do you perceive our system of government works? Perhaps similar to this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. Statutes is upheld by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Rise of Offshore Tribunals

Nowadays, foreign corporations, along with the wealthy individuals behind them, can sue elected administrations for the policies they pass, at private courts composed of business advocates. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. You or I are barred from bringing a case to them, just as our government, including businesses headquartered in this country. Access is granted exclusively to entities registered abroad.

When a secret court finds that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These awards are based not on actual losses but funds the tribunal officials decide the company would perhaps have made. The administration could be forced to drop the legislation. It becomes deterred from passing future laws along the same lines, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being filed, as corporations learn from each other, and hedge funds finance suits in return for a share of the settlements. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can override a country's own laws and the choices made by parliaments is that this clause has been incorporated – absent public approval, and typically amid conditions of total confidentiality – inside international trade agreements.

A Concrete Case: The Whitehaven Coal Mine

Last year, a conservation group won a great victory at the High Court. The presiding officer found that schemes to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The new government then withdrew the permission the Tories had granted. Currently, this victory is under threat by an offshore tribunal accountable to only the companies filing the suit.

In August, a firm whose final controllers are located in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in the United States was set up to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had received permission to go ahead. Citizens have little idea how much this sum represents. What legal team is serving as its counsel against the British government? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the domestic court validates it, then a international entity disputes it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case so far, but it is highly possible that he may employ the tribunal to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has started suing another European state with similar intent, claiming $16bn: half that state's yearly budget. Among the legal team representing him there? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists contend that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Growing Costs

We were assured that these scenarios could not occur. In 2014, a senior politician, promoting the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this topic described critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “when companies start to realise the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were met with scepticism.

That warning is now a reality. This year, oil and gas and extraction companies have initiated a historic level of suits against nations both wealthy and developing, opposing – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP