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Can you perceive our system of government operates? Perhaps along the lines of this. We elect MPs. They vote on bills. Should a majority is secured, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that used to be how it used to work. No longer.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, and the oligarchs who own them, have the power to sue governments for the laws they pass, at private courts staffed by corporate lawyers. These proceedings take place behind closed doors. Differing from national judiciaries, these panels provide no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, including enterprises operating from this country. The door is open solely for corporations registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s projected profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation are based not on tangible damages but funds the tribunal officials conclude the company would perhaps have made. The state could be forced to rescind the measure. It will be deterred from enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being brought, as firms take cues from each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The consequence? National sovereignty and democracy are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the choices made by legislatures is that this clause has been incorporated – without public consent, and often in conditions of profound opacity – within trade treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the high court. The presiding officer ruled that schemes to open the first major coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had granted. Now, this victory could be compromised by an offshore tribunal accountable to no one but the companies filing the suit.

Last August, a corporate entity whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. Recently a dispute settlement body in the US capital was set up to hear it.

This firm is litigating against the UK for the profits it might have made if the mine had been permitted to commence operations. We have little idea how much this might be. Which individual is acting on its behalf against the British government? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The administration enacts a policy, the high court upholds it, then a foreign company challenges it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Case

On the same day that the tribunal on the coalmine case was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it seems likely that he may employ the arbitration process to contest the restrictions the UK imposed on him after the war in Ukraine. He has already initiated proceedings against Luxembourg on these grounds, seeking $16bn: an amount representing half nation's yearly income. Part of the counsel on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars believe that the EU’s hesitation in utilising seized state funds as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine desperately needs.

Empty Promises and Growing Risks

The public was told that these events wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all such treaties, declared: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this topic accused activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies grasp the influence they now possess, they will redirect their efforts from the weak nations to the developed economies” were greeted by widespread derision.

That prediction is now a reality. This year, oil and gas and resource corporations have lodged a historic level of cases against nations rich and poor, challenging – as in the case of the UK mine – official measures to stop environmental catastrophe. Companies have thus far won $114bn through ISDS, of which oil majors have obtained the majority. That equates to the combined GDP