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What is your understand our system of government works? It could be along the lines of this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. Statutes are enforced by the courts. That's it. However, that used to be how it operated in the past. No longer.

The Emergence of Offshore Courts

Nowadays, overseas companies, or the billionaires who own them, are able to litigate against nation states for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are held away from public scrutiny. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses based in this country. Access is granted solely for businesses registered abroad.

Should an arbitration panel rules that a government measure could harm the corporation’s expected profits, it can award financial penalties of vast sums, even billions.

These sums are based not on tangible damages but money the tribunal officials conclude the company might otherwise have made. The administration might be compelled to abandon its policy. It is deterred from passing future laws in that area, for fear of facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being filed, as companies learn from each other, and private equity finance suits in return for a portion of the awards. The consequence? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the decisions made by elected bodies is that this provision has been written – without public consent, and frequently under a climate of profound opacity – within trade treaties.

A Specific Example: The UK Coalmine

Twelve months ago, environmental campaigners won a great victory at the senior court. The judge ruled that schemes to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine would have had no consequence on national carbon targets. The incoming administration later cancelled the permission the previous administration had issued. Today, this success faces being overturned by an foreign court reporting to exclusively the corporations bringing the case.

During August, a company whose ultimate owners are based in the offshore financial centre initiated proceedings challenging the UK government. Last week a arbitration panel in the United States was established to hear it.

The company is suing the UK for the profits it would have generated if the mine had received permission to commence operations. Citizens have no idea how much this might be. What legal team is serving as its counsel challenging the British government? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot the MP. The government enacts a policy, the high court validates it, then a foreign company challenges it through an unaccountable private court, and a member of our parliament works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he’ll use the tribunal to fight the sanctions the UK imposed on him following the war in Ukraine. He has already started suing Luxembourg for this reason, demanding sixteen billion dollars: half that government’s annual revenue. Part of the counsel representing him there? Cherie Blair, spouse of the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized oligarchs' funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over sovereign states could be blocking the finance Ukraine urgently requires.

False Assurances and Growing Threats

We were assured that these scenarios could not occur. In 2014, a senior politician, advocating for the biggest and most dangerous of all these agreements, stated: “Britain has agreed to investment treaty upon trade deal and we have never seen a issue in the past.” An adviser on this topic labelled activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear these lawsuits. Warnings that “as corporations grasp the power they’ve been granted, they will turn their attention from the weak nations to the strong ones” were greeted by general mockery.

That warning is now a reality. Recently, oil and gas and mining firms have lodged a historic level of claims against nations rich and poor, contesting – similar to the Whitehaven project – official measures to prevent global warming. Firms have thus far won vast sums by using ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP