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How do you perceive our system of government operates? It could be along the lines of this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that’s how it used to work. No longer.

The Advent of Secret Tribunals

Nowadays, international firms, or the wealthy individuals behind them, are able to litigate against governments for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases take place behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even companies operating from this country. The door is open only to businesses registered abroad.

Should an arbitration panel finds that a law or policy could harm the corporation’s expected profits, it can award damages of vast sums, running into billions.

These awards constitute not real financial harm but funds the arbitrators determine the company would perhaps have made. The government may have to abandon its policy. It is hesitant to enacting future policies in that area, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as companies learn from each other, and private equity finance suits for a share of a cut of the takings. The outcome? National sovereignty and democratic governance are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the choices enacted by parliaments is that this provision has been written – without public consent, and often in conditions of profound opacity – inside bilateral investment treaties.

A Concrete Case: The UK Coalmine

Twelve months ago, environmental campaigners won a great victory at the High Court. The presiding officer ruled that schemes to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The new government later cancelled the consent the Tories had approved. Now, this success is under threat by an secret arbitration panel reporting to only the companies bringing the case.

In August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. The previous week a tribunal in the United States was set up to hear it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. Citizens have no clear indication how much this sum represents. What legal team is acting on its behalf challenging the British government? A sitting MP, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The state passes a law, the high court supports it, then a international entity contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case to date, but it appears probable that he may employ the ISDS mechanism to contest the penalties the UK enacted against him following the war in Ukraine. He has initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: equivalent to half of state's yearly income. Among the counsel on his side? a prominent lawyer, spouse of the previous PM.

Trade specialists believe that the EU’s procrastination in using frozen state funds as guarantee for its financial support package is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that these scenarios wouldn’t happen. In 2014, a government leader, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this topic accused activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations had to worry about these lawsuits. Predictions that “once firms begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were met with general mockery.

That prediction has now materialised. In the current period, fossil fuel and extraction companies have lodged a record number of suits against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to prevent environmental catastrophe. Companies have so far won vast sums by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP