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Can you perceive our system of government operates? Perhaps something like this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. The law is maintained by the courts. End of story. Well, that was how it used to work. Not anymore.

The Rise of Offshore Courts

Nowadays, international firms, or the billionaires who own them, can sue elected administrations for the policies they pass, at private courts staffed by commercial attorneys. These proceedings take place behind closed doors. Differing from national judiciaries, these tribunals grant no opportunity to appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even businesses operating from this country. They are open exclusively to corporations operating from foreign soil.

When a secret court determines that a government measure could harm the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These awards represent not real financial harm but money the tribunal officials determine the company might otherwise have made. The government might be compelled to rescind the measure. It will be deterred from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being brought, as corporations observe each other, and investment funds finance suits in exchange for a share of the takings. The consequence? Sovereignty and democratic governance are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the rulings made by legislatures is that this provision has been incorporated – without public consent, and frequently under an atmosphere of profound opacity – inside international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

Twelve months ago, activists secured a significant win at the High Court. The judge determined that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have zero effect on our carbon budgets. The Labour government then withdrew the consent the Tories had granted. Now, this success is under threat by an secret arbitration panel answering to only the entities filing the suit.

In August, a firm whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was set up to consider the case.

This firm is seeking compensation from the UK for the money it might have made if the mine had received permission to commence operations. We have no idea how much this could amount to. Who is representing it against the UK administration? A sitting MP, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the domestic court upholds it, then a international entity challenges it through an unaccountable offshore tribunal, and a elected official works for its behalf.

An Oligarch's Lawsuit

Concurrently that the court on the coal mine dispute was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case at present, but it appears probable that he will utilise the tribunal to contest the penalties the UK imposed on him following the war in Ukraine. He has already started suing a small nation on these grounds, demanding a colossal sum: an amount representing half state's yearly budget. Among the lawyers representing him there? Cherie Blair, spouse of the former British prime minister.

International law scholars argue that the EU’s hesitation in leveraging immobilised state funds as collateral for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over elected governments may be obstructing the funds Ukraine critically depends on.

Empty Promises and Growing Risks

The public was told that these scenarios were not possible. In 2014, a senior politician, championing the most significant and hazardous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this topic labelled activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries needed to fear ISDS claims. Warnings that “as corporations start to realise the authority bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were greeted by widespread derision.

That prediction has now materialised. This year, energy and extraction companies have initiated a record number of cases against nations across the economic spectrum, challenging – similar to the UK mine – state efforts to halt environmental catastrophe. Corporations have thus far won $114bn by using ISDS, of which energy giants have secured the majority. That equates to the combined GDP