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Can you perceive our system of government works? It could be something like this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law are enforced by the courts. Simple as that. Yet, that used to be how it once functioned. Not anymore.

The Advent of Offshore Courts

In the modern era, foreign corporations, and the wealthy individuals that control them, are able to litigate against governments for the policies they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held in secret. In contrast to domestic courts, these tribunals provide no avenue for appeal or oversight by judges. You or I cannot take a case to them, just as our government, including companies operating from this country. Access is granted only to corporations registered abroad.

If a tribunal determines that a government measure may compromise the corporation’s projected profits, it may order damages of hundreds of millions, potentially billions.

These awards represent not tangible damages but compensation the arbitrators determine the company would perhaps have made. The state might be compelled to abandon its policy. It is hesitant to passing future laws along the same lines, worried about incurring a lawsuit.

A System Running Rampant

Record numbers of cases are being initiated, as corporations take cues from each other, and hedge funds finance suits in return for a cut of the settlements. The consequence? National sovereignty and popular rule are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the rulings made by legislatures is that this stipulation has been inserted – without democratic mandate, and frequently under conditions of total confidentiality – within international trade agreements.

A Real-World Example: The UK Coal Mine

A year ago, activists won a great victory at the senior court. The justice ruled that plans to dig the first major coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have no impact on climate commitments. The incoming administration later cancelled the consent the Tories had approved. Today, this victory faces being overturned by an foreign court reporting to exclusively the corporations petitioning it.

During August, a firm whose ultimate owners are based in the Cayman Islands lodged a claim versus the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to proceed. The public has little idea how much this sum represents. Which individual is acting on its behalf challenging the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government enacts a policy, the national judiciary validates it, then a overseas corporation contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Challenge

Simultaneously that the court on the coal mine dispute was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case so far, but it is highly possible that he will utilise the arbitration process to contest the penalties the UK imposed on him after the invasion of Ukraine. He has previously started suing Luxembourg on these grounds, claiming a colossal sum: an amount representing half government’s yearly income. Among the counsel on his side? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its financial support package is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Growing Risks

The public was told that these scenarios could not occur. In 2014, a government leader, promoting the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade agreement upon trade deal and there has never been a case in the past.” An expert on this issue accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations start to realise the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That threat is now a reality. Recently, oil and gas and mining firms have initiated a unprecedented number of claims against nations rich and poor, challenging – like the example of the UK mine – official measures to stop environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have secured $84bn. That represents the combined GDP