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What is your reckon our political system works? It could be similar to this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills pass into law. Legislation is upheld by the courts. End of story. Yet, that used to be how it operated in the past. No longer.

The Emergence of Offshore Courts

Today, foreign corporations, and the oligarchs behind them, have the power to sue elected administrations for the laws they pass, at offshore tribunals staffed by corporate lawyers. The cases take place in secret. Unlike our courts, these panels allow no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, or even businesses headquartered in this country. The door is open solely for entities based overseas.

Should an arbitration panel determines that a law or policy may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These sums are based not on tangible damages but funds the tribunal officials decide the company might otherwise have made. The state might be compelled to rescind the measure. It is deterred from enacting future policies of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The consequence? Sovereignty and popular rule are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the choices enacted by parliaments is that this provision has been incorporated – without democratic mandate, and typically amid an atmosphere of total confidentiality – into bilateral investment treaties.

A Real-World Case: The Cumbrian Coalmine

A year ago, environmental campaigners secured a significant win at the High Court. The presiding officer determined that plans to open the first deep coalmine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no impact on national carbon targets. The Labour government then withdrew the permission the former government had granted. Currently, this legal outcome could be compromised by an foreign court reporting to only the entities bringing the case.

Last August, a corporate entity whose beneficial owners reside in the tax haven lodged a claim versus the UK government. Last week a tribunal in Washington DC was set up to adjudicate on it.

The company is suing the UK for the profits it could have earned if the mine had been permitted to commence operations. Citizens have no clear indication how much this might be. What legal team is representing it in opposition to the British government? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The government passes a law, the domestic court validates it, then a international entity contests it through an unaccountable offshore tribunal, and a elected official works for its behalf.

The Russian Case

Concurrently that the panel on the coalmine case was established, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case at present, but it appears probable that he will utilise the arbitration process to contest the sanctions the UK levied against him following the war in Ukraine. He has previously started suing Luxembourg on these grounds, claiming sixteen billion dollars: half that government’s yearly budget. Included in the counsel on his side? Cherie Blair, married to the ex-UK leader.

International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, unaccountable authority over sovereign states may be obstructing the finance Ukraine critically depends on.

Empty Promises and Growing Costs

We were assured that such things were not possible. In 2014, a government leader, advocating for the most significant and hazardous of all these agreements, declared: “Britain has agreed to trade deal after trade deal and there has not been a problem in the past.” An adviser on this matter labelled campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear such legal actions. Warnings that “as corporations grasp the power bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were met with general mockery.

That prediction has come to pass. Recently, fossil fuel and mining firms have filed a record number of cases against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to prevent global warming. Companies have to date won vast sums via ISDS, of which energy giants have secured $84bn. That represents the combined GDP