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What is your reckon our system of government works? Maybe something like this. We elect MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Legislation are enforced by the courts. End of story. However, that’s how it once functioned. Not anymore.

The Emergence of Offshore Courts

In the modern era, foreign corporations, along with the billionaires behind them, have the power to sue nation states for the policies they pass, at private courts made up of commercial attorneys. The cases take place behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even companies operating from this country. Access is granted only to businesses based overseas.

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

These sums are based not on tangible damages but funds the arbitrators determine the company could potentially have made. The administration could be forced to drop the legislation. It becomes discouraged from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of legal actions are being brought, as companies take cues from each other, and private equity bankroll lawsuits in return for a share of the awards. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the decisions made by elected bodies is that this provision has been incorporated – without democratic mandate, and frequently under a climate of total confidentiality – into trade treaties.

A Specific Example: The Cumbrian Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer ruled that plans to open the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine would have no impact on national carbon targets. The new government later cancelled the licence the Tories had issued. Now, this victory is under threat by an foreign court reporting to exclusively the corporations filing the suit.

In August, a company whose final controllers reside in the tax haven filed a lawsuit versus the UK government. Recently a arbitration panel in the US capital was convened to consider the case.

This firm is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. We have no clear indication how much this sum represents. Which individual is acting on its behalf against the British government? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The state passes a law, the national judiciary supports it, then a foreign company disputes it through an unaccountable private court, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he will utilise the tribunal to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has filed a claim against a small nation for this reason, demanding a colossal sum: an amount representing half government’s yearly income. Among the legal team acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

Legal experts contend that the EU’s hesitation in using frozen oligarchs' funds as security for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that these events could not occur. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, stated: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An expert on this issue accused activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “when companies start to realise the power they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with widespread derision.

That warning is now a reality. In the current period, fossil fuel and mining firms have lodged a record number of cases against nations both wealthy and developing, opposing – similar to the UK mine – state efforts to halt global warming. Firms have to date won vast sums via ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP