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How do you understand our democratic process works? Perhaps similar to this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Emergence of Offshore Courts

Today, overseas companies, and the wealthy individuals that control them, have the power to sue nation states for the laws they pass, at private courts staffed by corporate lawyers. These proceedings take place in secret. Unlike our courts, these panels provide no avenue for appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. They are open exclusively to corporations based overseas.

When a secret court rules that a government measure might diminish the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but funds the tribunal officials determine the company might otherwise have made. The administration could be forced to drop the legislation. It will be deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as corporations observe each other, and investment funds finance suits in exchange for a cut of the takings. The outcome? Democratic sovereignty and democratic governance are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the choices enacted by legislatures is that this clause has been inserted – absent public approval, and frequently under conditions of profound opacity – inside international trade agreements.

A Real-World Example: The UK Coal Mine

Twelve months ago, activists won a great victory at the senior court. The presiding officer determined that schemes to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine could have no impact on our carbon budgets. The new government later cancelled the consent the former government had approved. Today, this success faces being overturned by an foreign court reporting to no one but the entities bringing the case.

In August, a firm whose beneficial owners are located in the Cayman Islands lodged a claim against the UK government. Last week a arbitration panel in the United States was set up to hear it.

The company is litigating against the UK for the profits it might have made if the mine had been allowed to commence operations. The public has little idea how much this could amount to. Which individual is representing it in opposition to the state? A member of parliament, and former attorney-general in the previous government, the noted patriot the MP. The administration passes a law, the high court upholds it, then a foreign company challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case so far, but it appears probable that he will utilise the tribunal to contest the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has filed a claim against Luxembourg for this reason, claiming $16bn: an amount representing half nation's annual revenue. Among the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as security for its financial support package is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

Empty Promises and Escalating Costs

Politicians promised that these events wouldn’t happen. Previously, a senior politician, promoting the most significant and hazardous of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” A consultant on this topic accused activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “once firms begin to understand the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were met with general mockery.

That threat is now a reality. Recently, oil and gas and mining firms have filed a historic level of suits against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to halt global warming. Companies have so far won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP