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How do you perceive our system of government works? It could be similar to this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Statutes is maintained by the courts. End of story. Well, that was how it operated in the past. No longer.

The Rise of Secret Arbitration Panels

Nowadays, international firms, or the wealthy individuals who own them, can sue governments for the regulations they pass, at offshore tribunals staffed by business advocates. Such disputes are conducted in secret. Unlike our courts, these tribunals grant no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even enterprises headquartered in this country. The door is open exclusively to businesses based overseas.

If a tribunal rules that a legislative action may compromise the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, running into billions.

These awards represent not actual losses but funds the arbitrators determine the company would perhaps have made. The administration may have to abandon its policy. It becomes hesitant to passing future laws along the same lines, worried about being sued.

A Process Growing Exponentially

Record numbers of disputes are being brought, as firms take cues from each other, and investment funds finance suits for a share of a cut of the settlements. The result? Democratic sovereignty and democratic governance are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the rulings taken by parliaments is that this stipulation has been written – without public consent, and often in an atmosphere of extreme secrecy – within trade treaties.

A Concrete Example: The UK Coal Mine

A year ago, a conservation group won a great victory at the senior court. The justice found that plans to dig the first major coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine would have zero effect on our carbon budgets. The incoming administration then withdrew the licence the Tories had approved. Currently, this legal outcome could be compromised by an foreign court reporting to only the companies bringing the case.

Last August, a firm whose beneficial owners are located in the offshore financial centre initiated proceedings challenging the UK government. Recently a tribunal in Washington DC was established to hear it.

The company is litigating against the UK for the money it might have made if the mine had been permitted to commence operations. Citizens have no idea how much this sum represents. What legal team is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the domestic court supports it, then a overseas corporation contests it through an undemocratic arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Challenge

On the same day that the panel on the coal mine dispute was established, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case so far, but it is highly possible that he will utilise the tribunal to challenge the restrictions the UK enacted against him following the Russian aggression. He has filed a claim against Luxembourg with similar intent, demanding a colossal sum: half that nation's yearly income. Part of the counsel on his side? Cherie Blair, wife of the previous PM.

Trade specialists argue that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations might be preventing the finance Ukraine urgently requires.

False Assurances and Mounting Risks

The public was told that these events wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” A consultant on this topic described activists of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were met with scepticism.

That threat has now materialised. This year, fossil fuel and resource corporations have filed a record number of claims against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – official measures to halt climate breakdown. Firms have to date won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP