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Can you perceive our political system functions? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Well, that’s how it used to work. Those days are over.

The Emergence of Offshore Tribunals

Nowadays, foreign corporations, along with the wealthy individuals who own them, are able to litigate against governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. These proceedings are held in secret. Differing from national judiciaries, these panels allow no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, just as our government, including companies based in this country. Access is granted exclusively to entities registered abroad.

Should an arbitration panel finds that a law or policy could harm the corporation’s anticipated profits, it can award compensation of vast sums, even billions.

This compensation represent not tangible damages but funds the arbitrators conclude the company might otherwise have made. The government could be forced to abandon its policy. It will be discouraged from introducing similar legislation in that area, due to the risk of being sued.

A Process Running Rampant

Historically high figures of disputes are being filed, as companies take cues from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The consequence? National sovereignty and popular rule are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions taken by parliaments is that this clause has been incorporated – without democratic mandate, and typically amid an atmosphere of total confidentiality – inside trade treaties.

A Real-World Case: The Cumbrian Coalmine

A year ago, activists won a great victory at the High Court. The judge found that schemes to excavate the first deep coalmine in the UK for three decades, in northwest England, were found to be wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine would have zero effect on our carbon budgets. The incoming administration later cancelled the licence the Tories had issued. Now, this legal outcome could be compromised by an foreign court reporting to no one but the corporations filing the suit.

In August, a corporate entity whose final controllers reside in the offshore financial centre initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was established to hear it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. Citizens have little idea how much this sum represents. What legal team is acting on its behalf challenging the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, that great patriot the MP. The state enacts a policy, the high court upholds it, then a international entity challenges it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

The Russian Case

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK levied against him after the war in Ukraine. He has previously initiated proceedings against another European state with similar intent, demanding a colossal sum: an amount representing half state's yearly income. Included in the legal team on his side? a prominent lawyer, married to the ex-UK leader.

International law scholars argue that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

Politicians promised that such things wouldn’t happen. Years ago, a senior politician, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” A consultant on this matter described campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by such legal actions. Warnings that “as corporations start to realise the influence they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were greeted by scepticism.

That warning has come to pass. Recently, oil and gas and extraction companies have lodged a historic level of claims against nations rich and poor, opposing – as in the case of the Whitehaven project – state efforts to halt global warming. Firms have so far won vast sums via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP