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How do you reckon our system of government works? Maybe something like this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Legislation are enforced by the courts. End of story. Well, that used to be how it used to work. No longer.

The Advent of Offshore Courts

Today, foreign corporations, and the wealthy individuals that control them, can sue governments for the policies they pass, at offshore tribunals made up of business advocates. These proceedings are conducted in secret. Differing from national judiciaries, these panels grant no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, including enterprises headquartered in this country. Access is granted exclusively to corporations registered abroad.

If a tribunal determines that a government measure might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions, even billions.

These sums are based not on tangible damages but funds the panel members decide the company could potentially have made. The administration may have to rescind the measure. It becomes discouraged from passing future laws along the same lines, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as corporations learn from each other, and investment funds bankroll lawsuits for a share of a share of the awards. The outcome? Democratic sovereignty and democracy are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions taken by parliaments is that this provision has been incorporated – without public consent, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The UK Coalmine

Twelve months ago, activists won a great victory at the senior court. The justice ruled that proposals to dig the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have no impact on national carbon targets. The Labour government then withdrew the consent the previous administration had issued. Now, this success could be compromised by an foreign court accountable to only the corporations petitioning it.

Last August, a company whose ultimate owners reside in the tax haven filed a lawsuit challenging the UK government. The previous week a arbitration panel in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. We have little idea how much this might be. Which individual is acting on its behalf challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, 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 offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the sanctions the UK enacted against him following the invasion of Ukraine. He has started suing Luxembourg with similar intent, seeking sixteen billion dollars: an amount representing half state's yearly budget. Included in the counsel on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts contend that the EU’s delay in utilising seized oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations could be blocking the funds Ukraine urgently requires.

False Assurances and Escalating Risks

We were assured that these scenarios were not possible. Years ago, a former prime minister, promoting the biggest and most dangerous of all such treaties, stated: “The UK has signed investment treaty after trade deal and there has not been a case in the past.” An adviser on this issue described activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “as corporations begin to understand the influence bestowed upon them, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That warning has now materialised. In the current period, energy and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the UK mine – state efforts to prevent global warming. Firms have so far won vast sums through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP