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What is your perceive our political system works? Perhaps similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills become law. Legislation is maintained by the courts. End of story. However, that’s how it used to work. Not anymore.

The Emergence of Offshore Courts

In the modern era, overseas companies, or the billionaires behind them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are held in secret. Unlike our courts, these panels provide no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies based in this country. Access is granted solely for entities operating from foreign soil.

Should an arbitration panel finds that a legislative action might diminish the corporation’s expected profits, it may order financial penalties of vast sums, potentially billions.

These awards are based not on real financial harm but compensation the tribunal officials conclude the company could potentially have made. The administration might be compelled to drop the legislation. It will be hesitant to passing future laws along the same lines, worried about incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of legal actions are being brought, as companies observe each other, and hedge funds bankroll lawsuits in return for a portion of the takings. The outcome? Sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the rulings enacted by elected bodies is that this clause has been written – absent public approval, and often in conditions of extreme secrecy – inside trade treaties.

A Specific Instance: The Cumbrian Coalmine

A year ago, activists won a great victory at the High Court. The judge ruled that proposals to open the first major coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on national carbon targets. The new government subsequently revoked the permission the Tories had approved. Currently, this victory is under threat by an foreign court answering to only the entities petitioning it.

Last August, a company whose ultimate owners reside in the offshore financial centre initiated proceedings versus the UK government. Recently a arbitration panel in the United States was convened to consider the case.

The claimant is suing the UK for the profits it would have generated if the mine had been allowed to commence operations. The public has no clear indication how much this might be. Who is representing it against the British government? A member of parliament, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The government makes a decision, the high court validates it, then a foreign company contests it through an undemocratic offshore tribunal, and a elected official works for its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK levied against him after the Russian aggression. He has already initiated proceedings against another European state for this reason, claiming $16bn: an amount representing half government’s annual revenue. Part of the legal team acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Trade specialists believe that the EU’s procrastination in utilising seized state funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, unaccountable authority over sovereign states could be blocking the money Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that these scenarios wouldn’t happen. Previously, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and we have never seen a issue in the past.” A consultant on this issue described activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “when companies start to realise the influence they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were met with widespread derision.

That warning has come to pass. This year, oil and gas and extraction companies have lodged a record number of claims against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – government attempts to prevent climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP