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Can you reckon our system of government functions? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills become law. The law is maintained by the courts. Simple as that. Yet, that was how it used to work. Those days are over.

The Emergence of Offshore Courts

Nowadays, foreign corporations, or the billionaires behind them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of commercial attorneys. These proceedings are held behind closed doors. Unlike our courts, these tribunals grant no right of appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. They are open solely for corporations registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

This compensation represent not tangible damages but money the tribunal officials decide the company might otherwise have made. The state might be compelled to rescind the measure. It will be deterred from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A System 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 cut of the awards. The consequence? Democratic sovereignty and democratic governance are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the choices enacted by parliaments is that this clause has been written – without democratic mandate, and often in conditions of extreme secrecy – inside trade treaties.

A Concrete Instance: The Whitehaven Coalmine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The judge found that plans to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had endorsed the questionable argument that the mine could have zero effect on our carbon budgets. The new government then withdrew the permission the former government had approved. Now, this legal outcome faces being overturned by an foreign court reporting to no one but the corporations bringing the case.

In August, a corporate entity whose final controllers are located in the tax haven lodged a claim challenging the UK government. Last week a arbitration panel in the US capital was set up to hear it.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to commence operations. Citizens have little idea how much this sum represents. Which individual is acting on its behalf against the state? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The state makes a decision, the national judiciary upholds it, then a overseas corporation disputes it through an unaccountable private court, and a member of our parliament works for its behalf.

The Russian Case

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case to date, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK enacted against him following the war in Ukraine. He has initiated proceedings against Luxembourg for this reason, seeking $16bn: an amount representing half nation's yearly income. Included in the counsel on his side? a prominent lawyer, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in using frozen Russian assets as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Empty Promises and Mounting Costs

We were assured that these events wouldn’t happen. Previously, a former prime minister, championing the largest and riskiest of all these agreements, stated: “The UK has signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this issue accused campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “as corporations grasp the influence they now possess, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with scepticism.

That prediction is now a reality. In the current period, energy and mining firms have lodged a record number of suits against nations both wealthy and developing, opposing – similar to the Whitehaven project – official measures to stop global warming. Corporations have to date won vast sums through ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP