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Can you reckon our system of government operates? It could be along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. That's it. However, that was how it once functioned. Those days are over.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the oligarchs behind them, can sue nation states for the laws they pass, at private courts staffed by commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. You or I cannot take a case to them, and neither can our government, including companies based in this country. The door is open exclusively to corporations registered abroad.

When a secret court finds that a legislative action may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These awards are based not on actual losses but money the tribunal officials conclude the company would perhaps have made. The government could be forced to rescind the measure. It will be deterred from passing future laws along the same lines, worried about facing litigation.

A System Growing Exponentially

Record numbers of disputes are being initiated, as firms take cues from each other, and investment funds fund legal actions in return for a cut of the settlements. The consequence? Sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the rulings enacted by legislatures is that this provision has been written – without democratic mandate, and typically amid a climate of extreme secrecy – inside trade treaties.

A Concrete Example: The Cumbrian Coal Mine

Last year, environmental campaigners won a great victory at the high court. The judge found that schemes to open the first major coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine would have had no impact on our carbon budgets. The incoming administration later cancelled the licence the previous administration had granted. Now, this legal outcome could be compromised by an offshore tribunal answering to exclusively the entities filing the suit.

In August, a firm whose beneficial owners reside in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to proceed. The public has no idea how much this sum represents. What legal team is serving as its counsel challenging the state? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court supports it, then a foreign company contests it through an secretive arbitration panel, and a sitting MP represents its behalf.

A Sanctions Case

Simultaneously that the panel on the coal mine dispute was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case so far, but it seems likely that he will utilise the arbitration process to challenge the penalties the UK imposed on him following the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, claiming $16bn: an amount representing half nation's annual revenue. Part of the counsel acting for him in that case? Cherie Blair, married to the former British prime minister.

International law scholars argue that the EU’s delay in using frozen oligarchs' funds as collateral for its financial support package arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over elected governments might be preventing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

The public was told that these scenarios wouldn’t happen. Years ago, a senior politician, promoting the biggest and most dangerous of all these agreements, told us: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” An expert on this issue labelled campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “as corporations start to realise the influence they’ve been granted, they will turn their attention from the weak nations to the strong ones” were dismissed with general mockery.

That threat is now a reality. This year, fossil fuel and extraction companies have initiated a unprecedented number of cases against nations rich and poor, opposing – as in the case of the UK mine – government attempts to stop climate breakdown. Firms have so far won $114bn by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP