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What is your reckon our political system operates? Perhaps something like this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills become law. Legislation is maintained by the courts. Simple as that. However, that was how it operated in the past. No longer.

The Emergence of Offshore Courts

In the modern era, international firms, along with the wealthy individuals that control them, have the power to sue nation states for the policies they pass, at offshore tribunals made up of corporate lawyers. The cases are held behind closed doors. In contrast to domestic courts, these tribunals provide no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies headquartered in this country. They are open exclusively to entities operating from foreign soil.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, even billions.

These sums are based not on real financial harm but compensation the arbitrators determine the company would perhaps have made. The administration could be forced to rescind the measure. It will be deterred from passing future laws in that area, due to the risk of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of disputes are being filed, as corporations take cues from each other, and hedge funds fund legal actions in return for a share of the awards. The outcome? National sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the choices made by elected bodies is that this provision has been written – without public consent, and typically amid an atmosphere of profound opacity – into trade treaties.

A Real-World Case: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the High Court. The presiding officer determined that plans to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine would have no consequence on our carbon budgets. The Labour government later cancelled the permission the Tories had approved. Now, this victory faces being overturned by an secret arbitration panel answering to exclusively the companies filing the suit.

Last August, a firm whose beneficial owners are located in the tax haven initiated proceedings against the UK government. Last week a tribunal in the US capital was set up to consider the case.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had received permission to go ahead. Citizens have no idea how much this sum represents. What legal team is serving as its counsel against the UK administration? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Challenge

On the same day that the panel on the coalmine case was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it is highly possible that he may employ the ISDS mechanism to challenge the sanctions the UK levied against him after the invasion of Ukraine. He has previously initiated proceedings against Luxembourg on these grounds, demanding $16bn: half that government’s annual revenue. Among the counsel acting for him in that case? a prominent lawyer, married to the former British prime minister.

Trade specialists contend that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Escalating Costs

Politicians promised that such things wouldn’t happen. Years ago, a senior politician, advocating for the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this matter labelled critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries needed to fear such legal actions. Predictions that “when companies grasp the power they now possess, they will redirect their efforts from the weak nations to the strong ones” were greeted by general mockery.

That warning has come to pass. Recently, fossil fuel and resource corporations have initiated a unprecedented number of cases against nations rich and poor, contesting – similar to the UK mine – state efforts to prevent environmental catastrophe. Companies have thus far won vast sums by using ISDS, of which oil majors have secured $84bn. That equates to the combined GDP