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Can you understand our system of government works? Maybe something like this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. The law are enforced by the courts. End of story. However, that was how it used to work. No longer.

The Emergence of Offshore Courts

Nowadays, overseas companies, along with the wealthy individuals behind them, are able to litigate against governments for the laws they pass, at private courts made up of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these bodies allow no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. The door is open exclusively to corporations based overseas.

When a secret court rules that a law or policy could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

These awards represent not actual losses but money the arbitrators determine the company could potentially have made. The state could be forced to rescind the measure. It will be discouraged from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of cases are being initiated, as corporations observe each other, and investment funds bankroll lawsuits for a share of a share of the takings. The consequence? Democratic sovereignty and popular rule are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the choices taken by parliaments is that this stipulation has been inserted – absent public approval, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Concrete Instance: The UK Coal Mine

Last year, a conservation group achieved a major legal triumph at the High Court. The justice ruled that plans to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have zero effect on climate commitments. The incoming administration then withdrew the consent the previous administration had granted. Now, this victory is under threat by an secret arbitration panel accountable to exclusively the companies filing the suit.

Last August, a corporate entity whose final controllers reside in the tax haven lodged a claim against the UK government. Last week a dispute settlement body in the United States was set up to hear it.

The claimant is litigating against the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have little idea how much this might be. Which individual is representing it in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The state passes a law, the high court supports it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a member of our parliament represents its behalf.

The Russian Case

Concurrently that the court on the coalmine case was convened, it was revealed from a parliamentary answer 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 appears probable that he will utilise the arbitration process to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has previously filed a claim against another European state for this reason, demanding $16bn: equivalent to half of government’s annual revenue. Among the legal team on his side? a prominent lawyer, wife of the previous PM.

Legal experts believe that the EU’s delay in utilising seized Russian assets as guarantee for its financial support package arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over sovereign states might be preventing the money Ukraine desperately needs.

False Assurances and Escalating Risks

We were assured that these scenarios were not possible. In 2014, a government leader, championing the most significant and hazardous of all these agreements, declared: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this matter described activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries had to worry about ISDS claims. Warnings that “once firms grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction has now materialised. This year, oil and gas and mining firms have initiated a historic level of suits against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – state efforts to prevent climate breakdown. Corporations have to date won vast sums by using ISDS, of which energy giants have obtained the majority. That equates to the combined GDP