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How do you understand our system of government functions? Perhaps similar to this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Well, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Courts

In the modern era, international firms, along with the billionaires behind them, can sue governments for the laws they pass, at private courts made up of business advocates. The cases take place away from public scrutiny. In contrast to domestic courts, these panels provide no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open exclusively to businesses operating from foreign soil.

When a secret court finds that a government measure could harm the corporation’s projected profits, it can award compensation of vast sums, potentially billions.

This compensation are based not on real financial harm but funds the panel members determine the company could potentially have made. The state may have to rescind the measure. It becomes deterred from introducing similar legislation in that area, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as firms observe each other, and investment funds fund legal actions in return for a share of the settlements. The consequence? Democratic sovereignty and popular rule are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the choices enacted by elected bodies is that this clause has been written – without public consent, and frequently under a climate of profound opacity – within bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The judge ruled that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have zero effect on climate commitments. The Labour government later cancelled the consent the previous administration had granted. Currently, this victory could be compromised by an offshore tribunal answering to only the entities bringing the case.

In August, a corporate entity whose ultimate owners reside in the tax haven filed a lawsuit versus the UK government. Last week a tribunal in the United States was convened to adjudicate on it.

This firm is litigating against the UK for the revenue it might have made if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Which individual is representing it against the UK administration? A member of parliament, and former attorney-general in the Conservative government, that great patriot the MP. The state passes a law, the high court validates it, then a overseas corporation disputes it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Case

On the same day that the tribunal on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know little of the case at present, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK imposed on him after the invasion of Ukraine. He has already initiated proceedings against Luxembourg for this reason, seeking sixteen billion dollars: equivalent to half of government’s annual revenue. Among the lawyers on his side? a prominent lawyer, married to the ex-UK leader.

Trade specialists believe that the EU’s procrastination in utilising seized state funds as security for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Growing Costs

The public was told that these scenarios wouldn’t happen. Previously, a government leader, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” A consultant on this matter labelled campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by such legal actions. Warnings that “when companies begin to understand the authority bestowed upon them, they will shift their focus from the poorer states to the developed economies” were greeted by widespread derision.

That warning has come to pass. In the current period, fossil fuel and extraction companies have initiated a unprecedented number of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to stop global warming. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP