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How do you reckon our system of government functions? Perhaps along the lines of this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Legislation is upheld by the courts. End of story. However, that’s how it once functioned. No longer.

The Rise of Offshore Courts

Today, foreign corporations, or the oligarchs that control them, are able to litigate against governments for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted in secret. Differing from national judiciaries, these panels allow no avenue for appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. They are open only to entities based overseas.

Should an arbitration panel determines that a government measure may compromise the corporation’s expected profits, it may order financial penalties of vast sums, running into billions.

These sums represent not tangible damages but compensation the panel members determine the company could potentially have made. The government may have to drop the legislation. It will be deterred from passing future laws in that area, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Historically high figures of cases are being brought, as firms learn from each other, and private equity bankroll lawsuits in exchange for a cut of the awards. The outcome? Democratic sovereignty and democratic governance are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the choices enacted by legislatures is that this provision has been written – without democratic mandate, and often in an atmosphere of total confidentiality – inside bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

Last year, activists achieved a major legal triumph at the high court. The judge found that proposals to excavate the first new deep coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The Labour government then withdrew the consent the previous administration had issued. Today, this success is under threat by an secret arbitration panel reporting to no one but the corporations bringing the case.

Last August, a company whose final controllers are located in the tax haven filed a lawsuit against the UK government. The previous week a dispute settlement body in Washington DC was set up to hear it.

The claimant is litigating against the UK for the profits it might have made if the mine had been allowed to go ahead. We have little idea how much this sum represents. What legal team is serving as its counsel against the UK administration? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a international entity disputes it through an unaccountable private court, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case so far, but it appears probable that he’ll use the ISDS mechanism to fight the sanctions the UK enacted against him following the invasion of Ukraine. He has previously filed a claim against Luxembourg on these grounds, claiming a colossal sum: half that state's yearly budget. Among the counsel representing him there? the wife of a former prime minister, spouse of the previous PM.

Trade specialists contend that the EU’s delay in using frozen oligarchs' funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over sovereign states might be preventing the funds Ukraine urgently requires.

Misleading Claims and Growing Threats

The public was told that these events wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all such treaties, told us: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” An expert on this topic accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Warnings that “when companies start to realise the influence they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning has now materialised. This year, energy and resource corporations have filed a record number of cases against nations rich and poor, challenging – like the example of the UK mine – official measures to stop global warming. Firms have to date won vast sums through ISDS, of which energy giants have obtained $84bn. That represents the combined GDP