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How do you understand our system of government operates? Maybe something like this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Emergence of Offshore Courts

Today, international firms, or the billionaires behind them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are held away from public scrutiny. Differing from national judiciaries, these panels provide no right of appeal or legal review. You or I cannot take a case to them, nor can our government, or even companies based in this country. They are open solely for corporations operating from foreign soil.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These awards represent not actual losses but compensation the tribunal officials conclude the company would perhaps have made. The administration might be compelled to rescind the measure. It is discouraged from passing future laws along the same lines, due to the risk of being sued.

A Process Growing Exponentially

Historically high figures of disputes are being brought, as companies observe each other, and hedge funds fund legal actions in exchange for a portion of the awards. The consequence? National sovereignty and popular rule are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings made by legislatures is that this provision has been written – without public consent, and often in conditions of extreme secrecy – within bilateral investment treaties.

A Specific Case: The Whitehaven Coalmine

Last year, activists secured a significant win at the high court. The presiding officer found that proposals to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no impact on our carbon budgets. The Labour government then withdrew the permission the previous administration had issued. Today, this victory could be compromised by an offshore tribunal reporting to exclusively the entities petitioning it.

In August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in the United States was convened to consider the case.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to go ahead. Citizens have little idea how much this might be. What legal team is serving as its counsel in opposition to the British government? A member of parliament, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The administration passes a law, the high court supports it, then a foreign company contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the coalmine case was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case at present, but it appears probable that he will utilise the arbitration process to contest the sanctions the UK imposed on him following the war in Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, demanding sixteen billion dollars: half that nation's yearly budget. Among the counsel on his side? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in using frozen Russian assets as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over democratic administrations may be obstructing the funds Ukraine urgently requires.

Empty Promises and Growing Costs

The public was told that these events were not possible. Previously, a government leader, championing the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty after trade deal and we have never seen a case in the past.” A consultant on this topic accused campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “once firms begin to understand the authority they’ve been granted, they will shift their focus from the weak nations to the developed economies” were dismissed with widespread derision.

That threat has come to pass. Recently, oil and gas and mining firms have lodged a record number of cases against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – official measures to prevent global warming. Companies have so far won $114bn through ISDS, of which oil majors have secured the majority. That is equivalent to the combined GDP