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How do you reckon our political system operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that used to be how it operated in the past. Those days are over.

The Advent of Offshore Courts

Today, overseas companies, or the billionaires that control them, are able to litigate against nation states for the policies they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are conducted in secret. Differing from national judiciaries, these tribunals grant no avenue for appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted solely for corporations operating from foreign soil.

Should an arbitration panel finds that a law or policy might diminish the corporation’s anticipated profits, it may order damages of vast sums, running into billions.

This compensation represent not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The state might be compelled to drop the legislation. It will be deterred from enacting future policies of a similar nature, due to the risk of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being filed, as firms take cues from each other, and private equity fund legal actions in exchange for a share of the awards. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the rulings taken by legislatures is that this provision has been incorporated – without democratic mandate, and typically amid a climate of extreme secrecy – into bilateral investment treaties.

A Specific Instance: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The judge determined that proposals to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The Labour government then withdrew the consent the Tories had approved. Now, this victory is under threat by an foreign court accountable to only the entities filing the suit.

During August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim challenging the UK government. Recently a arbitration panel in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to commence operations. The public has no idea how much this sum represents. What legal team is acting on its behalf in opposition to the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The administration passes a law, the high court validates it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the court on the mining lawsuit was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case to date, but it seems likely that he’ll use the arbitration process to fight the restrictions the UK levied against him following the invasion of Ukraine. He has filed a claim against a small nation for this reason, demanding $16bn: half that state's annual revenue. Part of the counsel representing him there? a prominent lawyer, married to the former British prime minister.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over elected governments may be obstructing the money Ukraine critically depends on.

Misleading Claims and Mounting Costs

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, told us: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter labelled campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries had to worry about these lawsuits. Warnings that “when companies begin to understand the power they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That warning has come to pass. This year, energy and resource corporations have lodged a historic level of claims against nations across the economic spectrum, opposing – like the example of the Cumbrian coalmine – state efforts to stop environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP