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How do you understand our political system functions? It could be something like this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law are enforced by the courts. That's it. Yet, that was how it operated in the past. Not anymore.

The Emergence of Offshore Courts

In the modern era, international firms, and the wealthy individuals who own them, can sue nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these panels grant no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, nor can our government, or even enterprises operating from this country. They are open solely for entities based overseas.

Should an arbitration panel rules that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation constitute not real financial harm but funds the arbitrators decide the company would perhaps have made. The government could be forced to abandon its policy. It is hesitant to enacting future policies in that area, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of legal actions are being filed, as companies take cues from each other, and hedge funds fund legal actions in return for a cut of the awards. The result? Sovereignty and democracy are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the decisions made by elected bodies is that this provision has been written – without democratic mandate, and typically amid conditions of extreme secrecy – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

A year ago, environmental campaigners won a great victory at the High Court. The judge determined that schemes to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have zero effect on climate commitments. The Labour government subsequently revoked the consent the former government had issued. Today, this success is under threat by an foreign court accountable to exclusively the companies filing the suit.

During August, a company whose beneficial owners reside in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in the US capital was established to hear it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to proceed. Citizens have no idea how much this could amount to. Who is representing it challenging the state? An elected representative, and former attorney-general in the previous government, the noted patriot Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are nothing of the case to date, but it seems likely that he’ll use the arbitration process to fight the sanctions the UK imposed on him after the invasion of Ukraine. He has started suing another European state with similar intent, seeking $16bn: half that state's annual revenue. Part of the legal team on his side? a prominent lawyer, spouse of the ex-UK leader.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, unaccountable authority over sovereign states could be blocking the funds Ukraine critically depends on.

Misleading Claims and Escalating Threats

Politicians promised that these scenarios could not occur. Previously, a government leader, promoting the largest and riskiest of all these agreements, declared: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An adviser on this issue labelled critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations grasp the authority they now possess, they will redirect their efforts from the weak nations to the developed economies” were met with general mockery.

That warning has now materialised. In the current period, oil and gas and resource corporations have filed a historic level of cases against nations rich and poor, challenging – similar to the UK mine – state efforts to prevent environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP