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Can you reckon our system of government works? Perhaps similar to this. We elect MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that used to be how it once functioned. Those days are over.

The Advent of Shadow Courts

In the modern era, international firms, along with the billionaires who own them, can sue elected administrations for the regulations they pass, at offshore tribunals composed of corporate lawyers. Such disputes are held in secret. In contrast to domestic courts, these bodies grant no right of appeal or legal review. Ordinary citizens 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.

If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it can award damages of vast sums, potentially billions.

This compensation represent not real financial harm but compensation the tribunal officials decide the company could potentially have made. The administration could be forced to drop the legislation. It is deterred from introducing similar legislation in that area, worried about facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms observe each other, and investment funds fund legal actions in return for a share of the takings. The consequence? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the choices made by elected bodies is that this stipulation has been inserted – absent public approval, and typically amid conditions of total confidentiality – into international trade agreements.

A Real-World Example: The Whitehaven Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The presiding officer determined that schemes to open the first major coal mine in the UK for a generation, in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on our carbon budgets. The Labour government later cancelled the permission the former government had granted. Now, this victory is under threat by an offshore tribunal answering to no one but the entities filing the suit.

In August, a firm whose final controllers are based in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a arbitration panel in the United States was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had received permission to commence operations. The public has little idea how much this sum represents. Which individual is representing it in opposition to the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a foreign company contests it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

The Russian Lawsuit

Concurrently that the court on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case to date, but it appears probable that he may employ the tribunal to fight the penalties the UK enacted against him after the war in Ukraine. He has filed a claim against a small nation for this reason, demanding $16bn: an amount representing half government’s annual revenue. Included in the legal team representing him there? Cherie Blair, wife of the ex-UK leader.

International law scholars argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that these events could not occur. In 2014, a senior politician, advocating for the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this issue labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “as corporations start to realise the power they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.

That prediction has now materialised. In the current period, fossil fuel and mining firms have initiated a historic level of claims against nations across the economic spectrum, challenging – as in the case of the UK mine – government attempts to prevent climate breakdown. Firms have to date won vast sums through ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP