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What is your reckon our political system works? It could be similar to this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills pass into law. Statutes is upheld by the courts. End of story. However, that used to be how it used to work. Those days are over.

The Advent of Offshore Tribunals

Today, foreign corporations, along with the billionaires who own them, can sue nation states for the policies they pass, at offshore tribunals staffed by business advocates. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies provide no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, or even businesses based in this country. The door is open solely for corporations operating from foreign soil.

Should an arbitration panel rules that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

These awards are based not on real financial harm but funds the tribunal officials conclude the company could potentially have made. The state could be forced to drop the legislation. It is hesitant to enacting future policies along the same lines, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being filed, as companies learn from each other, and hedge funds fund legal actions in return for a share of the awards. The result? Sovereignty and democracy are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the rulings taken by legislatures is that this provision has been inserted – absent public approval, and frequently under an atmosphere of profound opacity – within trade treaties.

A Real-World Example: The UK Coal Mine

Last year, environmental campaigners secured a significant win at the High Court. The presiding officer found that plans to excavate the first new deep coal mine in the UK for three decades, in northwest England, were unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have had no consequence on our carbon budgets. The new government later cancelled the licence the previous administration had approved. Now, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the companies bringing the case.

During August, a corporate entity whose beneficial owners are located in the offshore financial centre initiated proceedings versus the UK government. Recently a arbitration panel in the United States was convened to adjudicate on it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. The public has little idea how much this sum represents. Which individual is acting on its behalf against the UK administration? An elected representative, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a elected official works for its behalf.

The Russian Case

Simultaneously that the tribunal on the coal mine dispute was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case at present, but it seems likely that he will utilise the ISDS mechanism to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has already initiated proceedings against another European state for this reason, claiming sixteen billion dollars: half that nation's annual revenue. Part of the counsel representing him there? a prominent lawyer, spouse of the previous PM.

International law scholars argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its financial support package arises 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 democratic administrations might be preventing the funds Ukraine critically depends on.

Misleading Claims and Escalating Costs

The public was told that these scenarios could not occur. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, stated: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this topic described activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries had to worry about ISDS claims. Warnings that “as corporations begin to understand the influence they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with scepticism.

That threat has now materialised. This year, fossil fuel and extraction companies have lodged a historic level of claims against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – state efforts to stop climate breakdown. Companies have so far won $114bn by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP