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What is your reckon our political system works? It could be similar to this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Advent of Offshore Courts

Nowadays, overseas companies, or the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of business advocates. The cases are conducted behind closed doors. In contrast to domestic courts, these tribunals provide no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, including enterprises operating from this country. Access is granted only to entities registered abroad.

Should an arbitration panel rules that a government measure may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These sums represent not real financial harm but compensation the arbitrators conclude the company could potentially have made. The state might be compelled to rescind the measure. It is deterred from introducing similar legislation in that area, worried about facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being initiated, as corporations observe each other, and hedge funds fund legal actions in exchange for a cut of the awards. The consequence? Sovereignty and popular rule are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the choices enacted by legislatures is that this stipulation has been written – without democratic mandate, and typically amid conditions of total confidentiality – within trade treaties.

A Specific Instance: The Whitehaven Coal Mine

Twelve months ago, activists won a great victory at the senior court. The presiding officer ruled that proposals to open the first deep coalmine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine could have no consequence on our carbon budgets. The new government then withdrew the permission the previous administration had issued. Today, this success is under threat by an secret arbitration panel answering to exclusively the entities bringing the case.

In August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings versus the UK government. Last week a tribunal in the United States was convened to adjudicate on it.

The claimant is suing the UK for the revenue it might have made if the mine had received permission to commence operations. Citizens have little idea how much this might be. Which individual is acting on its behalf in opposition to the state? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The administration enacts a policy, the national judiciary validates it, then a international entity disputes it through an undemocratic private court, and a member of our parliament represents its behalf.

The Russian Challenge

Simultaneously that the court on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know scarce of the case so far, but it seems likely that he will utilise the tribunal to fight the penalties the UK enacted against him after the war in Ukraine. He has started suing Luxembourg for this reason, claiming sixteen billion dollars: an amount representing half state's yearly budget. Part of the counsel on his side? the wife of a former prime minister, married to the former British prime minister.

Trade specialists believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over sovereign states may be obstructing the money Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that such things wouldn’t happen. Years ago, a government leader, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed trade agreement upon trade deal and we have never seen a issue in the past.” An expert on this matter labelled critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “when companies start to realise the authority bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were dismissed with general mockery.

That threat has now materialised. In the current period, oil and gas and resource corporations have lodged a historic level of suits against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – state efforts to prevent global warming. Firms have to date won $114bn via ISDS, of which oil majors have been awarded the majority. That is equivalent to the combined GDP