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How do you understand our system of government works? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that used to be how it once functioned. Those days are over.

The Advent of Offshore Courts

In the modern era, international firms, and the wealthy individuals behind them, have the power to sue governments for the regulations they pass, at private courts composed of commercial attorneys. Such disputes are held away from public scrutiny. In contrast to domestic courts, these panels grant no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises operating from this country. They are open solely for businesses based overseas.

If a tribunal determines that a government measure might diminish the corporation’s anticipated profits, it may order damages of hundreds of millions, even billions.

This compensation represent not real financial harm but money the arbitrators conclude the company could potentially have made. The administration may have to rescind the measure. It is hesitant to passing future laws in that area, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as firms learn from each other, and investment funds finance suits in return for a portion of the settlements. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the decisions made by legislatures is that this stipulation has been written – absent public approval, and often in conditions of extreme secrecy – within trade treaties.

A Real-World Instance: The UK Coalmine

Last year, environmental campaigners secured a significant win at the high court. The judge found that proposals to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine would have had no consequence on climate commitments. The incoming administration then withdrew the licence the former government had granted. Today, this victory could be compromised by an foreign court accountable to no one but the entities filing the suit.

Last August, a company whose beneficial owners are located in the tax haven lodged a claim challenging the UK government. The previous week a tribunal in Washington DC was convened to hear it.

The company is litigating against the UK for the revenue it could have earned if the mine had been permitted to proceed. We have little idea how much this might be. What legal team is representing it against the British government? A sitting MP, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The government makes a decision, the high court supports it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Case

On the same day that the tribunal on the mining lawsuit was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the sanctions the UK imposed on him following the war in Ukraine. He has already initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: an amount representing half government’s annual revenue. Part of the legal team on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts contend that the EU’s delay in using frozen oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments could be blocking the finance Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these scenarios could not occur. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, stated: “We’ve signed investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this topic described critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has come to pass. Recently, fossil fuel and mining firms have filed a record number of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – official measures to halt global warming. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP