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Can you reckon our system of government functions? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Rise of Offshore Courts

In the modern era, foreign corporations, along with the oligarchs who own them, have the power to sue elected administrations for the laws they pass, at offshore tribunals made up of commercial attorneys. The cases take place in secret. In contrast to domestic courts, these bodies grant no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. The door is open solely for corporations operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These sums constitute not actual losses but funds the panel members conclude the company would perhaps have made. The administration may have to rescind the measure. It will be deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Running Rampant

Record numbers of cases are being filed, as corporations take cues from each other, and hedge funds fund legal actions in return for a cut of the takings. The result? National sovereignty and popular rule are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the choices enacted by parliaments is that this clause has been inserted – without public consent, and typically amid a climate of total confidentiality – into bilateral investment treaties.

A Concrete Instance: The UK Coal Mine

Last year, activists secured a significant win at the High Court. The judge ruled that proposals to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have had zero effect on climate commitments. The Labour government subsequently revoked the permission the previous administration had issued. Currently, this legal outcome faces being overturned by an secret arbitration panel answering to exclusively the entities bringing the case.

Last August, a corporate entity whose final controllers are based in the tax haven filed a lawsuit against the UK government. Last week a dispute settlement body in the United States was set up to hear it.

This firm is litigating against the UK for the money it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this might be. What legal team is representing it challenging the state? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The state passes a law, the national judiciary supports it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a elected official acts on its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coal mine dispute was convened, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case at present, but it appears probable that he will utilise the arbitration process to challenge the restrictions the UK enacted against him following the war in Ukraine. He has previously started suing Luxembourg for this reason, claiming a colossal sum: an amount representing half nation's yearly budget. Among the counsel acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

International law scholars believe that the EU’s hesitation in using frozen Russian assets as guarantee for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states might be preventing the funds Ukraine urgently requires.

False Assurances and Escalating Costs

Politicians promised that these scenarios could not occur. In 2014, a government leader, advocating for the largest and riskiest of all such treaties, told us: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this issue accused critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “once firms start to realise the power they now possess, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That warning has now materialised. In the current period, fossil fuel and extraction companies have lodged a historic level of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – official measures to stop global warming. Firms have so far won vast sums via ISDS, of which oil majors have obtained $84bn. That represents the combined GDP