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How do you reckon our system of government functions? Maybe something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law is upheld by the courts. End of story. Well, that was how it once functioned. No longer.

The Advent of Secret Courts

Today, overseas companies, along with the wealthy individuals who own them, can sue elected administrations for the policies they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are held away from public scrutiny. Unlike our courts, these tribunals allow no right of appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. Access is granted only to businesses registered abroad.

Should an arbitration panel finds that a government measure might diminish the corporation’s anticipated profits, it can award financial penalties of vast sums, running into billions.

These sums represent not tangible damages but compensation the panel members conclude the company could potentially have made. The government may have to rescind the measure. It becomes deterred from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of cases are being brought, as companies take cues from each other, and private equity finance suits for a share of a portion of the settlements. The outcome? Sovereignty and popular rule are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the rulings made by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Real-World Example: The UK Coalmine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer found that schemes to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the licence the former government had granted. Currently, this victory could be compromised by an offshore tribunal accountable to exclusively the companies petitioning it.

During August, a firm whose final controllers are located in the Cayman Islands filed a lawsuit challenging the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. Who is representing it against the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a foreign company challenges it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Challenge

Concurrently that the panel on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case at present, but it seems likely that he may employ the tribunal to contest the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg with similar intent, demanding $16bn: an amount representing half state's yearly income. Included in the counsel on his side? the wife of a former prime minister, married to the previous PM.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as collateral for its financial support package arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments may be obstructing the finance Ukraine urgently requires.

False Assurances and Escalating Risks

Politicians promised that these events were not possible. In 2014, a former prime minister, advocating for the most significant and hazardous of all investment pacts, told us: “The UK has signed trade deal upon trade deal and there has never been a case in the past.” A consultant on this matter described campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “as corporations grasp the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with scepticism.

That prediction has come to pass. In the current period, energy and resource corporations have initiated a record number of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to prevent global warming. Corporations have to date won $114bn via ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP