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How do you understand our system of government functions? Maybe similar to this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Statutes are enforced by the courts. End of story. Yet, that used to be how it used to work. No longer.

The Rise of Offshore Courts

Nowadays, international firms, along with the billionaires behind them, can sue nation states for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are held behind closed doors. Differing from national judiciaries, these panels grant no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, including enterprises based in this country. The door is open only to entities registered abroad.

If a tribunal determines that a law or policy may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These awards constitute not actual losses but money the arbitrators decide the company would perhaps have made. The administration may have to drop the legislation. It will be hesitant to enacting future policies in that area, for fear of being sued.

A Process Running Rampant

Record numbers of disputes are being brought, as firms take cues from each other, and investment funds bankroll lawsuits in exchange for a share of the takings. The outcome? Sovereignty and popular rule are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the choices enacted by parliaments is that this stipulation has been written – without democratic mandate, and typically amid a climate of profound opacity – inside bilateral investment treaties.

A Real-World Instance: The Cumbrian Coalmine

Last year, environmental campaigners secured a significant win at the senior court. The presiding officer determined that schemes to open the first new deep coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had zero effect on national carbon targets. The incoming administration later cancelled the permission the previous administration had issued. Now, this victory is under threat by an foreign court accountable to only the corporations bringing the case.

In August, a corporate entity whose final controllers reside in the Cayman Islands filed a lawsuit against the UK government. Last week a arbitration panel in the US capital was convened to adjudicate on it.

This firm is suing the UK for the revenue it might have made if the mine had been permitted to go ahead. Citizens have no clear indication how much this could amount to. Which individual is serving as its counsel in opposition to the state? A member of parliament, and former attorney-general in the Conservative government, the noted patriot the MP. The state enacts a policy, the national judiciary validates it, then a international entity challenges it through an unaccountable arbitration panel, and a elected official represents its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case to date, but it is highly possible that he’ll use the tribunal to fight the sanctions the UK levied against him after the Russian aggression. He has already started suing a small nation with similar intent, claiming $16bn: equivalent to half of state's yearly budget. Among the lawyers on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

The public was told that these scenarios could not occur. Years ago, a government leader, advocating for the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade deal after trade deal and there has not been a case in the past.” An expert on this matter accused critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations should be concerned by ISDS claims. Predictions that “once firms begin to understand the influence they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That prediction is now a reality. This year, oil and gas and resource corporations have filed a record number of claims against nations across the economic spectrum, challenging – like the example of the Whitehaven project – government attempts to halt global warming. Companies have so far won $114bn via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP