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How do you reckon our system of government functions? It could be similar to this. We elect MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. The law is upheld by the courts. End of story. However, that’s how it operated in the past. No longer.

The Emergence of Offshore Courts

In the modern era, overseas companies, or the oligarchs behind them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of business advocates. The cases are held away from public scrutiny. Unlike our courts, these tribunals allow no opportunity to appeal or judicial review. You or I cannot take a case to them, just as 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 might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, running into billions.

This compensation represent not tangible damages but compensation the panel members conclude the company would perhaps have made. The government could be forced to drop the legislation. It will be deterred from passing future laws along the same lines, for fear of incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of legal actions are being brought, as companies learn from each other, and investment funds bankroll lawsuits in exchange for a portion of the takings. The outcome? Sovereignty and democratic governance are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the choices enacted by legislatures is that this provision has been incorporated – without democratic mandate, and frequently under an atmosphere of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners won a great victory at the High Court. The justice determined that plans to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The new government then withdrew the consent the former government had issued. Now, this legal outcome is under threat by an secret arbitration panel answering to exclusively the corporations petitioning it.

Last August, a company whose ultimate owners reside in the tax haven filed a lawsuit versus the UK government. The previous week a tribunal in the United States was set up to consider the case.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to proceed. Citizens have no clear indication how much this could amount to. Who is serving as its counsel against the British government? An elected representative, and previous senior legal advisor in the previous government, that great patriot the MP. The government enacts a policy, the domestic court validates it, then a overseas corporation challenges it through an undemocratic private court, and a elected official acts on its behalf.

The Russian Case

Concurrently that the court on the coalmine case was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case so far, but it is highly possible that he will utilise the tribunal to contest the restrictions the UK enacted against him after the war in Ukraine. He has already filed a claim against a small nation for this reason, seeking a colossal sum: an amount representing half state's yearly budget. Among the lawyers representing him there? Cherie Blair, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the money Ukraine critically depends on.

Empty Promises and Mounting Threats

We were assured that these scenarios wouldn’t happen. Previously, a former prime minister, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this matter accused critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries needed to fear ISDS claims. Predictions that “when companies start to realise the influence they’ve been granted, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That prediction is now a reality. Recently, fossil fuel and resource corporations have filed a unprecedented number of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to halt global warming. Firms have thus far won $114bn by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP