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Can you reckon our political system works? Perhaps something like this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. Yet, that’s how it used to work. No longer.

The Rise of Offshore Courts

Today, foreign corporations, or the oligarchs that control them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels staffed by business advocates. Such disputes are held away from public scrutiny. In contrast to domestic courts, these panels grant no right of appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even companies headquartered in this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions, running into billions.

These sums constitute not real financial harm but compensation the tribunal officials conclude the company would perhaps have made. The state might be compelled to abandon its policy. It will be deterred from introducing similar legislation in that area, for fear of being sued.

A System Running Rampant

Historically high figures of disputes are being initiated, as firms learn from each other, and hedge funds fund legal actions in return for a portion of the awards. The outcome? National sovereignty and democratic governance are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the choices taken by parliaments is that this clause has been written – absent public approval, and often in a climate of extreme secrecy – inside trade treaties.

A Specific Instance: The Cumbrian Coalmine

Last year, activists secured a significant win at the high court. The judge found that schemes to excavate the first major coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The new government subsequently revoked the consent the Tories had issued. Today, this success is under threat by an foreign court reporting to only the entities filing the suit.

In August, a firm whose ultimate owners are based in the offshore financial centre initiated proceedings versus the UK government. Recently a dispute settlement body in the United States was established to hear it.

The claimant is litigating against the UK for the money it might have made if the mine had been permitted to go ahead. We have no clear indication how much this could amount to. Who is representing it in opposition to the UK administration? An elected representative, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a overseas corporation disputes it through an unaccountable private court, and a elected official acts on its behalf.

A Sanctions Challenge

On the same day that the tribunal on the mining lawsuit was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK levied against him after the Russian aggression. He has already initiated proceedings against another European state for this reason, demanding sixteen billion dollars: an amount representing half nation's yearly budget. Part of the counsel acting for him in that case? a prominent lawyer, married to the previous PM.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations could be blocking the finance Ukraine desperately needs.

Misleading Claims and Growing Risks

Politicians promised that these events were not possible. Years ago, a former prime minister, championing the most significant and hazardous of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this matter labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by these lawsuits. Warnings that “as corporations grasp the power they’ve been granted, they will shift their focus from the weak nations to the strong ones” were dismissed with general mockery.

That prediction is now a reality. Recently, energy and mining firms have initiated a historic level of suits against nations rich and poor, challenging – similar to the Cumbrian coalmine – government attempts to stop climate breakdown. Companies have so far won $114bn by using ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP