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Can you reckon our political system works? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Statutes is maintained by the courts. Simple as that. However, that used to be how it used to work. No longer.

The Advent of Offshore Courts

Today, international firms, or the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at private courts made up of commercial attorneys. Such disputes are held behind closed doors. Unlike our courts, these panels allow no right of appeal or judicial review. You or I are unable to file a case to them, nor can our government, or even businesses operating from this country. The door is open only to businesses based overseas.

When a secret court finds that a legislative action might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions, even billions.

These awards constitute not real financial harm but compensation the panel members decide the company would perhaps have made. The administration could be forced to rescind the measure. It is deterred from introducing similar legislation in that area, worried about facing litigation.

A Process Growing Exponentially

Unprecedented levels of disputes are being initiated, as firms learn from each other, and hedge funds bankroll lawsuits in return for a cut of the settlements. The result? Democratic sovereignty and democratic governance are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the decisions enacted by elected bodies is that this stipulation has been written – without democratic mandate, and often in a climate of total confidentiality – within bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The judge determined that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The Labour government then withdrew the consent the previous administration had approved. Today, this success is under threat by an foreign court answering to only the companies filing the suit.

Last August, a company whose beneficial owners are based in the tax haven filed a lawsuit versus the UK government. Recently a dispute settlement body in the United States was convened to adjudicate on it.

The company is suing the UK for the profits it would have generated if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. Which individual is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a foreign company challenges it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the mining lawsuit was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it is highly possible that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has previously filed a claim against another European state for this reason, seeking $16bn: half that government’s yearly budget. Included in the lawyers representing him there? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists argue that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states might be preventing the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

We were assured that these events could not occur. In 2014, a former prime minister, promoting the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” An expert on this topic described critics of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Warnings that “when companies grasp the influence bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were met with general mockery.

That warning has come to pass. In the current period, oil and gas and resource corporations have filed a record number of suits against nations rich and poor, contesting – as in the case of the Whitehaven project – government attempts to prevent climate breakdown. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP