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How do you reckon our system of government operates? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Yet, that’s how it once functioned. No longer.

The Rise of Offshore Courts

Nowadays, overseas companies, along with the billionaires that control them, are able to litigate against nation states for the regulations they pass, at private courts staffed by commercial attorneys. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals allow no right of appeal or judicial review. The general public are unable to file a case to them, just as our government, or even enterprises operating from this country. The door is open only to corporations operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

These awards represent not real financial harm but compensation the panel members decide the company could potentially have made. The state might be compelled to drop the legislation. It becomes hesitant to enacting future policies along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being brought, as companies learn from each other, and private equity bankroll lawsuits in exchange for a portion of the takings. The outcome? Sovereignty and popular rule are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the decisions taken by elected bodies is that this provision has been incorporated – without democratic mandate, and typically amid a climate of total confidentiality – into international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The justice determined that plans to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government later cancelled the licence the Tories had approved. Today, this victory faces being overturned by an secret arbitration panel accountable to only the corporations bringing the case.

During August, a corporate entity whose ultimate owners are based in the offshore financial centre filed a lawsuit against the UK government. The previous week a arbitration panel in the United States was established to consider the case.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. We have little idea how much this sum represents. Which individual is representing it in opposition to the state? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government passes a law, the high court validates it, then a foreign company disputes it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Challenge

On the same day that the court on the coalmine case was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK imposed on him following the war in Ukraine. He has already filed a claim against Luxembourg for this reason, seeking $16bn: an amount representing half nation's yearly budget. Among the legal team representing him there? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s delay in leveraging immobilised Russian assets as collateral for its financial support package stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

Misleading Claims and Mounting Costs

The public was told that these scenarios were not possible. Years ago, a senior politician, championing the biggest and most dangerous of all these agreements, stated: “The UK has signed trade agreement after trade deal and there has not been a issue in the past.” An adviser on this matter described activists of “alarmism … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were dismissed with general mockery.

That threat is now a reality. This year, fossil fuel and mining firms have filed a unprecedented number of suits against nations across the economic spectrum, opposing – like the example of the UK mine – government attempts to halt global warming. Firms have thus far won $114bn by using ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP