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Can you understand our system of government operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. That's it. Well, that used to be how it used to work. No longer.

The Advent of Shadow Tribunals

Nowadays, foreign corporations, or the billionaires behind them, can sue elected administrations for the regulations they pass, at offshore tribunals made up of corporate lawyers. These proceedings are held behind closed doors. Unlike our courts, these panels provide no avenue for 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 corporations operating from foreign soil.

If a tribunal finds that a legislative action might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

This compensation constitute not actual losses but money the panel members determine the company might otherwise have made. The state could be forced to drop the legislation. It becomes discouraged from passing future laws along the same lines, worried about being sued.

A System Spiralling Out of Control

Historically high figures of legal actions are being initiated, as corporations learn from each other, and hedge funds fund legal actions in return for a share of the awards. The consequence? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the rulings taken by parliaments is that this provision has been incorporated – absent public approval, and frequently under an atmosphere of profound opacity – within international trade agreements.

A Specific Instance: The Whitehaven Coalmine

Twelve months ago, a conservation group secured a significant win at the high court. The judge ruled that proposals to dig the first new deep coal mine in the UK for a generation, in Cumbria, were unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine could have zero effect on national carbon targets. The new government then withdrew the licence the former government had issued. Today, this legal outcome faces being overturned by an offshore tribunal accountable to exclusively the corporations petitioning it.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands lodged a claim challenging the UK government. The previous week a arbitration panel in the US capital was established to adjudicate on it.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to commence operations. The public has no idea how much this sum represents. Who is acting on its behalf challenging the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a foreign company contests it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

The Russian Case

On the same day that the panel on the coal mine dispute was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case to date, but it seems likely that he may employ the arbitration process to fight the penalties the UK imposed on him following the Russian aggression. He has previously initiated proceedings against another European state for this reason, demanding a colossal sum: half that government’s annual revenue. Included in the legal team acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in using frozen Russian assets as collateral for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states may be obstructing the funds Ukraine desperately needs.

False Assurances and Escalating Threats

Politicians promised that these scenarios wouldn’t happen. In 2014, a former prime minister, promoting the largest and riskiest of all investment pacts, declared: “The UK has signed trade deal after trade deal and there has never been a case in the past.” A consultant on this topic described activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by these lawsuits. Predictions that “when companies begin to understand the authority they now possess, they will shift their focus from the weak nations to the wealthy nations” were met with scepticism.

That warning is now a reality. This year, energy and mining firms have initiated a unprecedented number of suits against nations rich and poor, opposing – like the example of the UK mine – government attempts to prevent global warming. Corporations have to date won vast sums by using ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP