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Can you perceive our political system operates? Perhaps something like this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills become law. The law are enforced by the courts. Simple as that. However, that was how it used to work. Not anymore.

The Emergence of Offshore Courts

Today, overseas companies, along with the billionaires behind them, can sue governments for the regulations they pass, at secret arbitration panels composed of corporate lawyers. The cases take place away from public scrutiny. Unlike our courts, these tribunals provide no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even companies based in this country. Access is granted only to entities based overseas.

When a secret court determines that a law or policy could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, even billions.

This compensation constitute not real financial harm but compensation the arbitrators conclude the company could potentially have made. The government might be compelled to rescind the measure. It will be deterred from introducing similar legislation of a similar nature, due to the risk of being sued.

A System Spiralling Out of Control

Record numbers of cases are being initiated, as companies learn from each other, and investment funds fund legal actions in return for a portion of the settlements. The result? Democratic sovereignty and democracy are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the rulings enacted by legislatures is that this clause has been written – absent public approval, and frequently under a climate of total confidentiality – into trade treaties.

A Concrete Case: The Cumbrian Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The justice found that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have no impact on our carbon budgets. The incoming administration then withdrew the consent the Tories had issued. Currently, this success could be compromised by an offshore tribunal answering to no one but the corporations filing the suit.

In August, a company whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. The previous week a tribunal in the United States was convened to adjudicate on it.

This firm is suing the UK for the profits it would have generated if the mine had been allowed to proceed. The public has little idea how much this sum represents. Which individual is acting on its behalf in opposition to the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration passes a law, the high court supports it, then a international entity contests it through an secretive offshore tribunal, and a elected official works for its behalf.

The Russian Challenge

Concurrently that the court on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it seems likely that he may employ the tribunal to challenge the sanctions the UK imposed on him subsequent to the war in Ukraine. He has already started suing another European state for this reason, seeking a colossal sum: equivalent to half of government’s yearly budget. Among the legal team acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Legal experts believe that the EU’s procrastination in leveraging immobilised state funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that these scenarios wouldn’t happen. Years ago, a senior politician, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” An adviser on this matter described activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by ISDS claims. Warnings that “once firms start to realise the authority they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. This year, energy and resource corporations have lodged a historic level of suits against nations across the economic spectrum, opposing – similar to the Whitehaven project – government attempts to stop global warming. Firms have to date won vast sums by using ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP