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How do you reckon our system of government operates? Perhaps something like this. The public votes for MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. That's it. Well, that was how it operated in the past. No longer.

The Emergence of Offshore Courts

Nowadays, international firms, along with the billionaires who own them, are able to litigate against nation states for the regulations they pass, at offshore tribunals composed of commercial attorneys. Such disputes are conducted in secret. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies headquartered in this country. They are open solely for entities based overseas.

If a tribunal finds that a legislative action may compromise the corporation’s anticipated profits, it may order damages of hundreds of millions, running into billions.

This compensation constitute not actual losses but funds the arbitrators decide the company could potentially have made. The state might be compelled to abandon its policy. It will be hesitant to enacting future policies of a similar nature, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being brought, as companies observe each other, and hedge funds bankroll lawsuits in return for a cut of the awards. The consequence? Sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the rulings made by elected bodies is that this clause has been incorporated – without public consent, and often in a climate of profound opacity – within international trade agreements.

A Real-World Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the high court. The justice found that proposals to excavate the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine would have had no consequence on climate commitments. The incoming administration later cancelled the licence the former government had issued. Today, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the entities bringing the case.

During August, a firm whose final controllers are located in the tax haven lodged a claim against the UK government. Last week a tribunal in Washington DC was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. The public has little idea how much this sum represents. Which individual is representing it challenging the state? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the high court upholds it, then a foreign company challenges it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coalmine case was appointed, we learned from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it seems likely that he’ll use the ISDS mechanism to contest the restrictions the UK enacted against him after the Russian aggression. He has started suing a small nation with similar intent, demanding $16bn: an amount representing half nation's annual revenue. Among the lawyers acting for him in that case? Cherie Blair, married to the former British prime minister.

International law scholars contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the funds Ukraine urgently requires.

Misleading Claims and Growing Risks

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” A consultant on this matter accused critics of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations should be concerned by ISDS claims. Predictions that “once firms grasp the power they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That warning has now materialised. This year, oil and gas and mining firms have filed a record number of suits against nations rich and poor, challenging – like the example of the UK mine – government attempts to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP