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What is your perceive our system of government operates? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. Well, that’s how it operated in the past. Not anymore.

The Emergence of Offshore Arbitration Panels

Today, foreign corporations, and the billionaires behind them, are able to litigate against elected administrations for the laws they pass, at private courts staffed by commercial attorneys. The cases are conducted away from public scrutiny. Unlike our courts, these panels grant no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even enterprises operating from this country. The door is open solely for businesses registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s expected profits, it has the power to grant compensation of vast sums, running into billions.

This compensation represent not tangible damages but money the panel members determine the company would perhaps have made. The state may have to abandon its policy. It is deterred from passing future laws in that area, worried about being sued.

A System Growing Exponentially

Unprecedented levels of legal actions are being initiated, as companies take cues from each other, and hedge funds fund legal actions in exchange for a portion of the takings. The outcome? Democratic sovereignty and popular rule are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the decisions enacted by parliaments is that this clause has been written – without democratic mandate, and frequently under an atmosphere of profound opacity – inside bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Last year, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that proposals to open the first deep coalmine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have no consequence on climate commitments. The Labour government then withdrew the licence the previous administration had approved. Now, this success could be compromised by an offshore tribunal accountable to only the companies petitioning it.

Last August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings against the UK government. Recently a dispute settlement body in the US capital was convened to hear it.

The claimant is suing the UK for the money it could have earned if the mine had been allowed to commence operations. Citizens have little idea how much this sum represents. Who is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The state enacts a policy, the domestic court validates it, then a foreign company challenges it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the coal mine dispute was established, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case so far, but it seems likely that he may employ the ISDS mechanism to contest the sanctions the UK imposed on him following the Russian aggression. He has filed a claim against Luxembourg for this reason, claiming $16bn: half that government’s annual revenue. Among the legal team acting for him in that case? Cherie Blair, spouse of the former British prime minister.

International law scholars contend that the EU’s delay in leveraging immobilised Russian assets as collateral for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over elected governments could be blocking the funds Ukraine desperately needs.

False Assurances and Escalating Risks

The public was told that such things could not occur. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An expert on this issue accused critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear such legal actions. Warnings that “when companies begin to understand the authority bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were greeted by widespread derision.

That prediction has come to pass. This year, oil and gas and extraction companies have lodged a historic level of claims against nations across the economic spectrum, contesting – similar to the Whitehaven project – official measures to prevent climate breakdown. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP