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Can you reckon our political system operates? Maybe something like this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Yet, that’s how it used to work. No longer.

The Rise of Offshore Courts

Nowadays, overseas companies, or the oligarchs who own them, can sue elected administrations for the laws they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place in secret. In contrast to domestic courts, these bodies grant no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, including businesses based in this country. They are open solely for corporations registered abroad.

Should an arbitration panel finds that a government measure may compromise the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, running into billions.

This compensation are based not on actual losses but compensation the tribunal officials determine the company could potentially have made. The administration may have to abandon its policy. It is discouraged from enacting future policies of a similar nature, for fear of being sued.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being brought, as firms learn from each other, and investment funds finance suits in return for a portion of the settlements. The outcome? National sovereignty and democratic governance are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the rulings made by legislatures is that this stipulation has been incorporated – without public consent, and frequently under an atmosphere of total confidentiality – inside trade treaties.

A Specific Example: The UK Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The presiding officer found that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The Labour government then withdrew the permission the former government had approved. Today, this success is under threat by an foreign court accountable to exclusively the entities bringing the case.

In August, a company whose final controllers are based in the Cayman Islands lodged a claim versus the UK government. Recently a arbitration panel in Washington DC was convened to hear it.

This firm is litigating against the UK for the money it might have made if the mine had been allowed to proceed. The public has no clear indication how much this sum represents. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The government makes a decision, the national judiciary validates it, then a overseas corporation disputes it through an unaccountable private court, and a elected official acts on its behalf.

A Sanctions Challenge

On the same day that the tribunal on the coalmine case was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case at present, but it appears probable that he’ll use the tribunal to fight the sanctions the UK levied against him following the war in Ukraine. He has filed a claim against Luxembourg on these grounds, claiming $16bn: equivalent to half of nation's yearly income. Among the legal team representing him there? Cherie Blair, married to the former British prime minister.

Trade specialists believe that the EU’s hesitation in utilising seized state funds as security for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that these scenarios wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, declared: “The UK has signed investment treaty upon trade deal and there has not been a issue in the past.” An adviser on this matter accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations needed to fear such legal actions. Cautionary notes that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with general mockery.

That threat has come to pass. In the current period, oil and gas and resource corporations have lodged a unprecedented number of cases against nations both wealthy and developing, opposing – similar to the UK mine – state efforts to halt environmental catastrophe. Corporations have thus far won vast sums via ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP