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How do you perceive our political system functions? Maybe similar to this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Well, that was how it once functioned. Not anymore.

The Advent of Offshore Courts

Today, foreign corporations, or the wealthy individuals behind them, have the power to sue governments for the policies they pass, at private courts staffed by commercial attorneys. The cases take place in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or legal review. You or I are barred from bringing a case to them, nor can our government, or even companies based in this country. They are open only to entities registered abroad.

If a tribunal rules that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions, potentially billions.

These sums constitute not real financial harm but money the arbitrators decide the company might otherwise have made. The state may have to rescind the measure. It becomes hesitant to passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of legal actions are being initiated, as firms observe each other, and hedge funds fund legal actions for a share of a cut of the settlements. The result? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the rulings made by legislatures is that this stipulation has been inserted – without public consent, and typically amid an atmosphere of extreme secrecy – within trade treaties.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer ruled that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have no impact on climate commitments. The new government subsequently revoked the consent the former government had approved. Today, this victory faces being overturned by an foreign court reporting to only the entities filing the suit.

In August, a firm whose ultimate owners are based in the tax haven filed a lawsuit against the UK government. Recently a tribunal in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to proceed. Citizens have no clear indication how much this might be. Which individual is representing it challenging the UK administration? An elected representative, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a foreign company disputes it through an secretive private court, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the mining lawsuit was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case to date, but it is highly possible that he will utilise the arbitration process to contest the penalties the UK imposed on him subsequent to the war in Ukraine. He has previously initiated proceedings against a small nation with similar intent, claiming $16bn: half that state's annual revenue. Included in the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars believe that the EU’s delay in using frozen oligarchs' funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

Misleading Claims and Escalating Threats

The public was told that such things were not possible. In 2014, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty upon trade deal and there has not been a issue in the past.” An expert on this matter described campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “as corporations begin to understand the power they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were met with scepticism.

That threat has now materialised. In the current period, oil and gas and resource corporations have initiated a unprecedented number of cases against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – state efforts to prevent global warming. Firms have so far won vast sums via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP