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Can you perceive our political system functions? It could be something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills become law. The law is maintained by the courts. That's it. However, that used to be how it used to work. No longer.

The Emergence of Offshore Courts

In the modern era, foreign corporations, and the billionaires who own them, can sue elected administrations for the regulations they pass, at offshore tribunals staffed by commercial attorneys. The cases are conducted behind closed doors. Differing from national judiciaries, these panels grant no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even enterprises headquartered in this country. They are open only to corporations operating from foreign soil.

Should an arbitration panel finds that a government measure may compromise the corporation’s projected profits, it may order damages of hundreds of millions, running into billions.

This compensation are based not on actual losses but compensation the panel members determine the company could potentially have made. The state may have to rescind the measure. It will be hesitant to enacting future policies along the same lines, worried about incurring a lawsuit.

A System Growing Exponentially

Record numbers of legal actions are being filed, as corporations take cues from each other, and hedge funds fund legal actions in exchange for a share of the awards. The outcome? Sovereignty and democratic governance are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the rulings taken by parliaments is that this clause has been incorporated – without public consent, and often in a climate of profound opacity – inside bilateral investment treaties.

A Real-World Case: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The judge found that proposals to excavate the first new deep coal mine in the UK for 30 years, in northwest England, had been illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The new government subsequently revoked the permission the Tories had issued. Now, this legal outcome could be compromised by an offshore tribunal accountable to no one but the companies filing the suit.

During August, a company whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. Recently a tribunal in the United States was set up to hear it.

This firm is litigating against the UK for the money it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. Which individual is acting on its behalf in opposition to the British government? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court validates it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

Concurrently that the court on the coalmine case was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case so far, but it seems likely that he will utilise the arbitration process to challenge the sanctions the UK enacted against him after the invasion of Ukraine. He has already started suing a small nation with similar intent, claiming a colossal sum: an amount representing half government’s yearly income. Part of the legal team acting for him in that case? Cherie Blair, wife of the previous PM.

Legal experts contend that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations might be preventing the funds Ukraine desperately needs.

Empty Promises and Escalating Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a former prime minister, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” A consultant on this topic accused activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations needed to fear ISDS claims. Warnings that “when companies begin to understand the influence they’ve been granted, they will turn their attention from the poorer states to the developed economies” were greeted by scepticism.

That prediction is now a reality. This year, energy and extraction companies have filed a record number of suits against nations both wealthy and developing, opposing – like the example of the Whitehaven project – state efforts to stop global warming. Companies have so far won vast sums by using ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP