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Can you reckon our system of government functions? Maybe something like this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. That's it. Well, that was how it used to work. Those days are over.

The Emergence of Offshore Courts

In the modern era, foreign corporations, or the wealthy individuals that control them, can sue elected administrations for the laws they pass, at private courts composed of corporate lawyers. These proceedings take place away from public scrutiny. Unlike our courts, these panels grant no right of appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, or even businesses operating from this country. The door is open exclusively to corporations registered abroad.

Should an arbitration panel rules that a law or policy might diminish the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These sums constitute not tangible damages but compensation the panel members conclude the company might otherwise have made. The government could be forced to rescind the measure. It will be hesitant to introducing similar legislation along the same lines, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of disputes are being filed, as firms observe each other, and private equity finance suits for a share of a cut of the settlements. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the choices taken by legislatures is that this clause has been incorporated – without public consent, and typically amid a climate of extreme secrecy – into trade treaties.

A Real-World Example: The Whitehaven Coalmine

Last year, a conservation group secured a significant win at the high court. The presiding officer ruled that plans to open 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 endorsed the extraordinary assertion that the mine would have no impact on national carbon targets. The new government later cancelled the permission the previous administration had granted. Today, this legal outcome is under threat by an foreign court answering to only the corporations petitioning it.

Last August, a company whose final controllers are located in the tax haven filed a lawsuit versus the UK government. Last week a arbitration panel in the United States was set up to consider the case.

The claimant is suing the UK for the revenue it might have made if the mine had been permitted to commence operations. Citizens have no clear indication how much this could amount to. Which individual is acting on its behalf in opposition to the state? An elected representative, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The state enacts a policy, the high court upholds it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

On the same day that the court on the coalmine case was appointed, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case to date, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK imposed on him subsequent to the war in Ukraine. He has previously filed a claim against another European state with similar intent, seeking sixteen billion dollars: equivalent to half of state's annual revenue. Included in the legal team acting for him in that case? Cherie Blair, wife of the previous PM.

International law scholars believe that the EU’s hesitation in using frozen state funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Escalating Threats

The public was told that these scenarios were not possible. In 2014, a senior politician, promoting the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this topic described critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “as corporations grasp the influence they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.

That prediction is now a reality. In the current period, fossil fuel and mining firms have filed a record number of claims against nations across the economic spectrum, opposing – similar to the Whitehaven project – state efforts to prevent global warming. Corporations have thus far won $114bn through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP