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How do you perceive our system of government functions? Perhaps something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. That's it. Well, that was how it once functioned. Those days are over.

The Emergence of Secret Tribunals

In the modern era, international firms, or the wealthy individuals that control them, can sue nation states for the policies they pass, at offshore tribunals composed of corporate lawyers. Such disputes take place away from public scrutiny. Differing from national judiciaries, these bodies provide no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses headquartered in this country. They are open only to entities operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation are based not on real financial harm but funds the arbitrators decide the company could potentially have made. The state could be forced to rescind the measure. It is deterred from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as companies observe each other, and investment funds fund legal actions for a share of a share of the awards. The outcome? National sovereignty and popular rule are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the choices enacted by elected bodies is that this provision has been written – absent public approval, and typically amid conditions of extreme secrecy – inside bilateral investment treaties.

A Concrete Case: The Cumbrian Coal Mine

Last year, a conservation group achieved a major legal triumph at the High Court. The presiding officer ruled that plans to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect on climate commitments. The incoming administration later cancelled the permission the previous administration had issued. Today, this success faces being overturned by an foreign court reporting to no one but the corporations bringing the case.

In August, a corporate entity whose beneficial owners are based in the offshore financial centre filed a lawsuit against the UK government. Last week a tribunal in the US capital was convened to hear it.

The company is seeking compensation from the UK for the profits it might have made if the mine had been allowed to go ahead. The public has no idea how much this sum represents. Which individual is acting on its behalf in opposition to the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The administration enacts a policy, the domestic court upholds it, then a foreign company contests it through an unaccountable private court, and a sitting MP represents its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case so far, but it seems likely that he may employ the tribunal to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has initiated proceedings against Luxembourg for this reason, seeking sixteen billion dollars: equivalent to half of government’s yearly budget. Included in the counsel representing him there? Cherie Blair, married to the previous PM.

International law scholars contend that the EU’s delay in leveraging immobilised Russian assets as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Mounting Risks

We were assured that these scenarios could not occur. Years ago, a former prime minister, championing the largest and riskiest of all these agreements, told us: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this topic accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “once firms grasp the power they now possess, they will shift their focus from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has now materialised. In the current period, energy and mining firms have lodged a historic level of claims against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – official measures to halt climate breakdown. Firms have to date won $114bn via ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP