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Can you reckon our political system works? It could be something like this. We elect MPs. They vote on bills. If a majority is obtained, the bills become law. The law is maintained by the courts. Simple as that. However, that’s how it operated in the past. No longer.

The Rise of Offshore Tribunals

Nowadays, international firms, and the oligarchs that control them, can sue nation states for the policies they pass, at private courts composed of business advocates. These proceedings are conducted behind closed doors. In contrast to domestic courts, these tribunals provide no right of appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, including enterprises based in this country. They are open exclusively to businesses registered abroad.

If a tribunal finds that a law or policy may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions, even billions.

These sums constitute not tangible damages but money the panel members decide the company might otherwise have made. The state could be forced to abandon its policy. It will be deterred from introducing similar legislation in that area, worried about facing litigation.

A Process Running Rampant

Unprecedented levels of cases are being filed, as corporations learn from each other, and hedge funds bankroll lawsuits in exchange for a cut of the settlements. The result? Sovereignty and democracy are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the rulings taken by elected bodies is that this stipulation has been written – absent public approval, and typically amid conditions of extreme secrecy – into international trade agreements.

A Specific Example: The Whitehaven Coalmine

Last year, environmental campaigners secured a significant win at the senior court. The judge determined that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The incoming administration subsequently revoked the consent the previous administration had granted. Now, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the companies petitioning it.

Last August, a corporate entity whose final controllers are based in the tax haven lodged a claim versus the UK government. Last week a arbitration panel in the United States was convened to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had received permission to proceed. The public has no clear indication how much this might be. What legal team is representing it in opposition to the British government? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

The Russian Lawsuit

Concurrently that the court on the mining lawsuit was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it appears probable that he will utilise the tribunal to fight the penalties the UK imposed on him subsequent to the Russian aggression. He has already started suing another European state with similar intent, claiming sixteen billion dollars: an amount representing half state's annual revenue. Among the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s delay in using frozen state funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over democratic administrations could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Costs

We were assured that such things could not occur. Years ago, a government leader, advocating for the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade agreement upon trade deal and we have never seen a case in the past.” An expert on this issue described campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries needed to fear such legal actions. Predictions that “once firms begin to understand the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by widespread derision.

That prediction has now materialised. Recently, oil and gas and mining firms have filed a unprecedented number of suits against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to prevent environmental catastrophe. Corporations have so far won $114bn through ISDS, of which oil majors have secured the majority. That equates to the combined GDP