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How do you reckon our system of government functions? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that was how it once functioned. Those days are over.

The Advent of Offshore Courts

Nowadays, foreign corporations, or the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, including businesses headquartered in this country. Access is granted exclusively to corporations registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions, even billions.

These awards represent not real financial harm but compensation the tribunal officials decide the company could potentially have made. The state could be forced to abandon its policy. It is discouraged from passing future laws of a similar nature, worried about being sued.

A Process Running Rampant

Historically high figures of disputes are being brought, as corporations take cues from each other, and investment funds fund legal actions for a share of a share of the awards. The outcome? Sovereignty and popular rule are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the rulings made by legislatures is that this stipulation has been written – without democratic mandate, and frequently under an atmosphere of extreme secrecy – into trade treaties.

A Real-World Example: The Cumbrian Coalmine

Last year, activists achieved a major legal triumph at the senior court. The judge found that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have zero effect on national carbon targets. The new government then withdrew the consent the former government had granted. Now, this success could be compromised by an secret arbitration panel reporting to exclusively the entities petitioning it.

In August, a firm whose beneficial owners are located in the Cayman Islands filed a lawsuit challenging the UK government. Recently a arbitration panel in the US capital was set up to hear it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to proceed. Citizens have little idea how much this sum represents. What legal team is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the outgoing administration, that great patriot the MP. The administration passes a law, the national judiciary upholds it, then a foreign company disputes it through an unaccountable private court, and a sitting MP acts on its behalf.

A Sanctions Challenge

Concurrently that the court on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has filed a claim against another European state with similar intent, claiming $16bn: equivalent to half of state's yearly income. Included in the counsel representing him there? a prominent lawyer, wife of the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized oligarchs' funds as security for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over elected governments may be obstructing the money Ukraine urgently requires.

Misleading Claims and Escalating Costs

The public was told that these events could not occur. Years ago, a government leader, championing the most significant and hazardous of all these agreements, told us: “Britain has agreed to trade deal after trade deal and there has not been a problem in the past.” An expert on this issue labelled activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by these lawsuits. Warnings that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat has now materialised. Recently, oil and gas and extraction companies have initiated a historic level of cases against nations across the economic spectrum, challenging – as in the case of the UK mine – state efforts to stop global warming. Companies have to date won $114bn by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP