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How do you reckon our system of government functions? Maybe similar to this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Emergence of Offshore Courts

In the modern era, overseas companies, and the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at private courts composed of corporate lawyers. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these panels provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted exclusively to businesses based overseas.

If a tribunal finds that a law or policy could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

This compensation represent not real financial harm but compensation the tribunal officials decide the company could potentially have made. The state might be compelled to rescind the measure. It is deterred from introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Record numbers of legal actions are being initiated, as companies learn from each other, and private equity fund legal actions for a share of a portion of the awards. The result? Sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the rulings enacted by legislatures is that this provision has been inserted – absent public approval, and frequently under an atmosphere of total confidentiality – into bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

Twelve months ago, activists won a great victory at the high court. The judge ruled that plans to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have no consequence on national carbon targets. The new government subsequently revoked the licence the Tories had approved. Today, this success could be compromised by an foreign court reporting to no one but the corporations bringing the case.

During August, a corporate entity whose ultimate owners are located in the Cayman Islands initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was set up to adjudicate on it.

The claimant is litigating against the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has little idea how much this might be. Which individual is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the high court supports it, then a overseas corporation disputes it through an secretive arbitration panel, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it seems likely that he will utilise the arbitration process to challenge the restrictions the UK levied against him after the Russian aggression. He has previously initiated proceedings against another European state on these grounds, seeking a colossal sum: an amount representing half state's yearly income. Part of the legal team on his side? Cherie Blair, spouse of the ex-UK leader.

International law scholars argue that the EU’s hesitation in leveraging immobilised state funds as security for its financial support package stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations might be preventing the funds Ukraine urgently requires.

Empty Promises and Mounting Risks

Politicians promised that these scenarios were not possible. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this matter accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies start to realise the authority bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with scepticism.

That warning has come to pass. This year, oil and gas and resource corporations have lodged a historic level of suits against nations both wealthy and developing, opposing – similar to the UK mine – official measures to halt climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded the majority. That is equivalent to the combined GDP