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Can you perceive our system of government works? It could be similar to this. The public votes for MPs. They vote on bills. When a majority is secured, the bills are enacted as law. The law is maintained by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals behind them, can sue nation states for the laws they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are held behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or judicial review. You or I are barred from bringing a case to them, just as our government, including enterprises headquartered in this country. They are open exclusively to businesses operating from foreign soil.

Should an arbitration panel rules that a legislative action may compromise the corporation’s expected profits, it can award financial penalties of hundreds of millions, running into billions.

These sums constitute not real financial harm but money the panel members conclude the company would perhaps have made. The government could be forced to rescind the measure. It becomes discouraged from introducing similar legislation along the same lines, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of legal actions are being initiated, as corporations learn from each other, and hedge funds finance suits in exchange for a portion of the takings. The outcome? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the rulings made by legislatures is that this clause has been incorporated – absent public approval, and frequently under conditions of profound opacity – into international trade agreements.

A Real-World Example: The Cumbrian Coalmine

A year ago, activists secured a significant win at the senior court. The judge found that proposals to open the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The new government later cancelled the permission the previous administration had issued. Currently, this legal outcome could be compromised by an foreign court accountable to exclusively the entities petitioning it.

Last August, a corporate entity whose beneficial owners are located in the Cayman Islands lodged a claim against the UK government. Recently a dispute settlement body in the US capital was established to consider the case.

The claimant is litigating against the UK for the money it might have made if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. Which individual is representing it challenging the British government? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The government passes a law, the national judiciary supports it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

The Russian Challenge

Concurrently that the panel on the mining lawsuit was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case so far, but it seems likely that he’ll use the arbitration process to contest the restrictions the UK enacted against him following the Russian aggression. He has previously started suing a small nation with similar intent, demanding $16bn: half that state's annual revenue. Among the lawyers acting for him in that case? Cherie Blair, spouse of the former British prime minister.

Trade specialists argue 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 subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.

False Assurances and Mounting Risks

The public was told that these events could not occur. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, told us: “Britain has agreed to investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this matter accused critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries should be concerned by such legal actions. Predictions that “when companies start to realise the authority they now possess, they will redirect their efforts from the poorer states to the strong ones” were met with widespread derision.

That prediction has now materialised. In the current period, fossil fuel and extraction companies have filed a unprecedented number of suits against nations across the economic spectrum, challenging – similar to the UK mine – state efforts to stop global warming. Companies have so far won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP