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What is your perceive our system of government works? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Statutes is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. No longer.

The Advent of Offshore Courts

In the modern era, foreign corporations, and the oligarchs that control them, are able to litigate against nation states for the laws they pass, at private courts composed of business advocates. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, including businesses headquartered in this country. They are open only to entities based overseas.

When a secret court rules that a government measure may compromise the corporation’s projected profits, it has the power to grant damages of vast sums, even billions.

These sums are based not on actual losses but funds the panel members decide the company might otherwise have made. The state could be forced to drop the legislation. It is hesitant to passing future laws along the same lines, for fear of facing litigation.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and investment funds fund legal actions in exchange for a cut of the settlements. The consequence? Sovereignty and democratic governance are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the choices taken by legislatures is that this provision has been inserted – without public consent, and frequently under conditions of profound opacity – into bilateral investment treaties.

A Concrete Instance: The Cumbrian Coalmine

Last year, a conservation group secured a significant win at the senior court. The presiding officer found that plans to excavate the first deep coalmine in the UK for 30 years, in Cumbria, had been unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have zero effect on climate commitments. The Labour government later cancelled the permission the former government had issued. Today, this success could be compromised by an offshore tribunal answering to no one but the corporations bringing the case.

During August, a firm whose ultimate owners are located in the offshore financial centre lodged a claim against the UK government. The previous week a tribunal in Washington DC was set up to adjudicate on it.

The claimant is litigating against the UK for the revenue it might have made if the mine had been permitted to go ahead. We have little idea how much this sum represents. Which individual is acting on its behalf in opposition to the UK administration? A member of parliament, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The state enacts a policy, the high court validates it, then a overseas corporation contests it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case so far, but it appears probable that he’ll use the arbitration process to contest the sanctions the UK enacted against him following the invasion of Ukraine. He has initiated proceedings against a small nation for this reason, claiming $16bn: an amount representing half nation's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen oligarchs' funds as security for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Mounting Risks

The public was told that such things wouldn’t happen. In 2014, a government leader, advocating for the largest and riskiest of all investment pacts, declared: “We’ve signed trade deal upon trade deal and there has never been a issue in the past.” An adviser on this topic accused campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations should be concerned by such legal actions. Predictions that “when companies begin to understand the power they’ve been granted, they will shift their focus from the weak nations to the developed economies” were dismissed with general mockery.

That prediction is now a reality. This year, energy and mining firms have lodged a unprecedented number of cases against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP