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Can you perceive our political system functions? Maybe similar to this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Well, that was how it used to work. No longer.

The Emergence of Offshore Courts

In the modern era, international firms, or the oligarchs behind them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels composed of business advocates. These proceedings take place away from public scrutiny. Unlike our courts, these tribunals allow no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even businesses operating from this country. Access is granted exclusively to corporations based overseas.

If a tribunal rules that a legislative action may compromise the corporation’s expected profits, it may order compensation of vast sums, even billions.

These sums represent not actual losses but money the tribunal officials determine the company could potentially have made. The government might be compelled to abandon its policy. It will be deterred from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of cases are being initiated, as firms take cues from each other, and investment funds fund legal actions in exchange for a portion of the settlements. The outcome? Sovereignty and democratic governance are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the choices taken by elected bodies is that this provision has been incorporated – without democratic mandate, and typically amid an atmosphere of extreme secrecy – inside international trade agreements.

A Concrete Instance: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer ruled that schemes to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine could have zero effect on national carbon targets. The new government later cancelled the consent the former government had issued. Now, this legal outcome is under threat by an secret arbitration panel answering to exclusively the companies petitioning it.

Last August, a firm whose ultimate owners reside in the tax haven lodged a claim against the UK government. Recently a tribunal in Washington DC was set up to adjudicate on it.

The company is seeking compensation from the UK for the money it would have generated if the mine had received permission to go ahead. We have no clear indication how much this might be. What legal team is representing it against the UK administration? A sitting MP, and former attorney-general in the previous government, the noted patriot the MP. The government enacts a policy, the national judiciary upholds it, then a foreign company contests it through an unaccountable private court, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case to date, but it appears probable that he’ll use the arbitration process to fight the penalties the UK imposed on him following the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, seeking sixteen billion dollars: half that nation's yearly income. Part of the counsel on his side? a prominent lawyer, married to the previous PM.

Trade specialists believe that the EU’s delay in using frozen oligarchs' funds as collateral 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 investment pact. This remarkable, undemocratic power over elected governments may be obstructing the finance Ukraine desperately needs.

False Assurances and Growing Risks

Politicians promised that such things were not possible. Previously, a senior politician, advocating for the biggest and most dangerous of all such treaties, told us: “The UK has signed investment treaty after trade deal and we have never seen a case in the past.” An expert on this topic described campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations had to worry about ISDS claims. Predictions that “as corporations begin to understand the influence they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were met with scepticism.

That warning is now a reality. This year, energy and extraction companies have lodged a unprecedented number of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – official measures to stop climate breakdown. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP