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How do you understand our system of government works? It could be along the lines of this. Citizens choose MPs. They vote on bills. When a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. However, that used to be how it once functioned. No longer.

The Rise of Offshore Courts

In the modern era, overseas companies, and the wealthy individuals that control them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place away from public scrutiny. In contrast to domestic courts, these bodies provide no avenue for appeal or judicial review. The general public cannot take a case to them, and neither can our government, or even enterprises based in this country. Access is granted only to corporations operating from foreign soil.

Should an arbitration panel determines that a legislative action could harm the corporation’s expected profits, it may order compensation of hundreds of millions, even billions.

These sums constitute not real financial harm but compensation the arbitrators decide the company could potentially have made. The state may have to drop the legislation. It will be discouraged from passing future laws of a similar nature, for fear of being sued.

A Process Growing Exponentially

Historically high figures of cases are being filed, as corporations take cues from each other, and private equity bankroll lawsuits in exchange for a portion of the awards. The result? Sovereignty and popular rule are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the choices taken by parliaments is that this provision has been inserted – without democratic mandate, and often in a climate of total confidentiality – within trade treaties.

A Specific Instance: The UK Coal Mine

Last year, activists achieved a major legal triumph at the high court. The justice found that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have no consequence on our carbon budgets. The new government then withdrew the licence the previous administration had approved. Today, this success faces being overturned by an foreign court accountable to no one but the entities petitioning it.

Last August, a firm whose final controllers are based in the tax haven filed a lawsuit against the UK government. Recently a tribunal in Washington DC was established to consider the case.

The company is litigating against the UK for the profits it might have made if the mine had been permitted to proceed. Citizens have no clear indication how much this could amount to. Which individual is acting on its behalf challenging the UK administration? A sitting MP, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The government passes a law, the domestic court supports it, then a foreign company challenges it through an unaccountable private court, and a member of our parliament works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously started suing Luxembourg with similar intent, demanding a colossal sum: equivalent to half of government’s yearly income. Included in the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists contend that the EU’s procrastination in leveraging immobilised state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over sovereign states might be preventing the funds Ukraine critically depends on.

Misleading Claims and Growing Costs

The public was told that such things could not occur. Previously, a government leader, promoting the most significant and hazardous of all investment pacts, declared: “The UK has signed trade deal upon trade deal and there has never been a problem in the past.” An adviser on this issue accused campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “once firms start to realise the power they now possess, they will shift their focus from the weak nations to the developed economies” were greeted by general mockery.

That threat has come to pass. Recently, oil and gas and resource corporations have lodged a record number of cases against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – government attempts to halt global warming. Firms have to date won vast sums via ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP