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Can you reckon our political system functions? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills become law. Legislation are enforced by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Advent of Offshore Courts

Nowadays, overseas companies, along with the wealthy individuals behind them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels composed of commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these panels grant no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, just as our government, or even companies operating from this country. They are open solely for corporations based overseas.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it can award compensation of hundreds of millions, potentially billions.

These sums are based not on tangible damages but funds the tribunal officials determine the company might otherwise have made. The government could be forced to abandon its policy. It is deterred from passing future laws of a similar nature, for fear of being sued.

A System Growing Exponentially

Unprecedented levels of legal actions are being filed, as companies observe each other, and hedge funds fund legal actions in return for a share of the settlements. The consequence? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the choices made by parliaments is that this clause has been written – without public consent, and often in conditions of profound opacity – inside bilateral investment treaties.

A Specific Case: The Cumbrian Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the senior court. The justice determined that proposals to excavate the first deep coalmine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have zero effect on national carbon targets. The Labour government subsequently revoked the licence the former government had approved. Currently, this success is under threat by an offshore tribunal accountable to only the companies bringing the case.

During August, a company whose final controllers are located in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in the US capital was set up to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. Citizens have no idea how much this could amount to. What legal team is acting on its behalf against the state? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The state passes a law, the national judiciary upholds it, then a overseas corporation contests it through an secretive private court, and a member of our parliament acts on its behalf.

The Russian Case

Concurrently that the court on the mining lawsuit was established, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case to date, but it seems likely that he will utilise the ISDS mechanism to fight the sanctions the UK enacted against him after the Russian aggression. He has initiated proceedings against Luxembourg on these grounds, claiming $16bn: an amount representing half government’s annual revenue. Among the legal team representing him there? Cherie Blair, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over elected governments might be preventing the money Ukraine desperately needs.

Empty Promises and Escalating Costs

The public was told that these events were not possible. Years ago, a former prime minister, advocating for the most significant and hazardous of all investment pacts, stated: “The UK has signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this topic described critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies grasp the power bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were dismissed with scepticism.

That threat has now materialised. This year, energy and extraction companies have initiated a unprecedented number of cases against nations across the economic spectrum, opposing – as in the case of the UK mine – state efforts to halt environmental catastrophe. Companies have thus far won vast sums through ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP