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Can you reckon our political system operates? Perhaps along the lines of this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills become law. The law is upheld by the courts. End of story. Yet, that used to be how it operated in the past. Not anymore.

The Emergence of Offshore Courts

In the modern era, foreign corporations, or the oligarchs behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels composed of commercial attorneys. The cases are conducted in secret. Unlike our courts, these bodies grant no opportunity to appeal or legal review. You or I cannot take a case to them, and neither can our government, including businesses operating from this country. They are open exclusively to businesses operating from foreign soil.

When a secret court finds that a government measure might diminish the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

This compensation represent not tangible damages but money the arbitrators conclude the company would perhaps have made. The government may have to rescind the measure. It is discouraged from introducing similar legislation of a similar nature, for fear of facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as firms observe each other, and investment funds bankroll lawsuits for a share of a share of the awards. The result? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the choices enacted by parliaments is that this stipulation has been written – absent public approval, and typically amid a climate of extreme secrecy – within international trade agreements.

A Concrete Case: The UK Coal Mine

Last year, a conservation group secured a significant win at the high court. The presiding officer determined that proposals to open the first major coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The Labour government subsequently revoked the consent the former government had granted. Now, this victory could be compromised by an offshore tribunal answering to no one but the companies petitioning it.

During August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was set up to hear it.

The claimant is suing the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this sum represents. Who is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The administration enacts a policy, the national judiciary upholds it, then a foreign company contests it through an undemocratic private court, and a member of our parliament works for its behalf.

The Russian Challenge

Simultaneously that the court on the coalmine case was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case so far, but it seems likely that he may employ the arbitration process to challenge the sanctions the UK imposed on him following the invasion of Ukraine. He has already started suing another European state on these grounds, demanding sixteen billion dollars: equivalent to half of state's yearly income. Included in the lawyers on his side? a prominent lawyer, wife of the previous PM.

Legal experts believe that the EU’s delay in using frozen Russian assets as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over sovereign states may be obstructing the funds Ukraine desperately needs.

Empty Promises and Mounting Risks

We were assured that these scenarios wouldn’t happen. In 2014, a former prime minister, championing the largest and riskiest of all these agreements, told us: “The UK has signed investment treaty upon trade deal and there has not been a case in the past.” An adviser on this matter labelled campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about these lawsuits. Predictions that “as corporations start to realise the influence they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat has come to pass. In the current period, oil and gas and extraction companies have filed a record number of claims against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – official measures to stop environmental catastrophe. Firms have to date won $114bn via ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP