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How do you understand our political system functions? Perhaps something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills become law. The law is maintained by the courts. That's it. However, that used to be how it once functioned. No longer.

The Advent of Offshore Courts

In the modern era, overseas companies, or the oligarchs behind them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these bodies allow no avenue for appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even companies operating from this country. Access is granted solely for corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions, even billions.

This compensation constitute not real financial harm but funds the tribunal officials determine the company could potentially have made. The state could be forced to abandon its policy. It becomes deterred from enacting future policies in that area, for fear of being sued.

A System Running Rampant

Unprecedented levels of cases are being initiated, as companies observe each other, and hedge funds finance suits in return for a share of the takings. The outcome? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the decisions enacted by legislatures is that this provision has been inserted – without democratic mandate, and often in conditions of profound opacity – into bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Last year, activists won a great victory at the senior court. The presiding officer found that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the questionable argument that the mine would have had no consequence on our carbon budgets. The new government then withdrew the licence the Tories had granted. Today, this victory is under threat by an secret arbitration panel accountable to only the companies petitioning it.

Last August, a company whose beneficial owners are based in the tax haven lodged a claim challenging the UK government. Recently a tribunal in Washington DC was set up to consider the case.

The company is suing the UK for the revenue it would have generated if the mine had been permitted to commence operations. We have no clear indication how much this might be. Which individual is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a international entity challenges it through an undemocratic private court, and a elected official works for its behalf.

The Russian Challenge

Concurrently that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case to date, but it seems likely that he’ll use the tribunal to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously initiated proceedings against a small nation on these grounds, seeking $16bn: equivalent to half of state's yearly budget. Part of the legal team acting for him in that case? Cherie Blair, spouse of the former British prime minister.

International law scholars believe that the EU’s delay in using frozen oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments could be blocking the money Ukraine critically depends on.

Misleading Claims and Escalating Risks

Politicians promised that these scenarios could not occur. Years ago, a senior politician, championing the largest and riskiest of all investment pacts, stated: “We’ve signed trade agreement upon trade deal and we have never seen a problem in the past.” A consultant on this matter labelled activists of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies begin to understand the power bestowed upon them, they will turn their attention from the weak nations to the developed economies” were met with scepticism.

That prediction is now a reality. Recently, oil and gas and extraction companies have lodged a record number of suits against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – government attempts to prevent global warming. Companies have so far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP