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What is your understand our political system operates? Maybe along the lines of this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that’s how it used to work. Those days are over.

The Advent of Offshore Courts

In the modern era, international firms, along with the billionaires who own them, can sue governments for the policies they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals grant no right of appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even businesses based in this country. Access is granted exclusively to entities based overseas.

If a tribunal rules that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, potentially billions.

These awards constitute not actual losses but compensation the arbitrators decide the company might otherwise have made. The government could be forced to rescind the measure. It is deterred from passing future laws in that area, worried about being sued.

A Mechanism Running Rampant

Historically high figures of cases are being brought, as companies take cues from each other, and hedge funds fund legal actions in exchange for a share of the awards. The consequence? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the decisions taken by elected bodies is that this provision has been inserted – without public consent, and typically amid a climate of total confidentiality – within trade treaties.

A Real-World Example: The UK Coalmine

Last year, activists won a great victory at the High Court. The presiding officer determined that proposals to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the licence the former government had approved. Now, this victory is under threat by an secret arbitration panel reporting to only the companies petitioning it.

During August, a firm whose final controllers are located in the tax haven initiated proceedings versus the UK government. The previous week a dispute settlement body in Washington DC was established to consider the case.

This firm is suing the UK for the money it would have generated if the mine had been permitted to proceed. We have little idea how much this could amount to. What legal team is representing it against the UK administration? An elected representative, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary supports it, then a international entity challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know little of the case at present, but it appears probable that he will utilise the ISDS mechanism to challenge the sanctions the UK enacted against him following the Russian aggression. He has already initiated proceedings against another European state on these grounds, seeking $16bn: equivalent to half of government’s annual revenue. Included in the lawyers on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars believe that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Mounting Risks

The public was told that these scenarios were not possible. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, stated: “The UK has signed trade deal after trade deal and we have never seen a case in the past.” An adviser on this topic described campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “when companies begin to understand the influence they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were met with scepticism.

That prediction has now materialised. This year, fossil fuel and mining firms have filed a unprecedented number of claims against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – state efforts to prevent global warming. Corporations have to date won $114bn via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP