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What is your perceive our political system works? Maybe something like this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation is maintained by the courts. Simple as that. Well, that’s how it once functioned. Not anymore.

The Rise of Offshore Courts

Today, foreign corporations, or the wealthy individuals that control them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels made up of business advocates. These proceedings are held in secret. Unlike our courts, these bodies allow no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, including enterprises operating from this country. Access is granted solely for corporations based overseas.

Should an arbitration panel finds that a law or policy might diminish the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These sums constitute not actual losses but compensation the panel members determine the company would perhaps have made. The government could be forced to rescind the measure. It is discouraged from enacting future policies along the same lines, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being filed, as corporations take cues from each other, and hedge funds bankroll lawsuits in return for a cut of the settlements. The consequence? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the choices made by legislatures is that this stipulation has been inserted – without public consent, and typically amid an atmosphere of total confidentiality – within trade treaties.

A Real-World Case: The Cumbrian Coalmine

Twelve months ago, a conservation group secured a significant win at the senior court. The presiding officer ruled that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine could have no impact on climate commitments. The new government then withdrew the permission the previous administration had granted. Today, this victory could be compromised by an offshore tribunal reporting to no one but the corporations filing the suit.

Last August, a corporate entity whose ultimate owners reside in the tax haven filed a lawsuit versus the UK government. The previous week a tribunal in the United States was convened to hear it.

The company is litigating against the UK for the money it might have made if the mine had been permitted to go ahead. Citizens have little idea how much this sum represents. Which individual is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a foreign company challenges it through an secretive private court, and a member of our parliament acts on its behalf.

The Russian Case

Concurrently that the tribunal on the mining lawsuit was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case to date, but it seems likely that he may employ the ISDS mechanism to fight the penalties the UK imposed on him following the war in Ukraine. He has started suing Luxembourg with similar intent, claiming a colossal sum: an amount representing half government’s yearly budget. Among the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists contend that the EU’s delay in leveraging immobilised oligarchs' funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

False Assurances and Growing Risks

We were assured that these events could not occur. Previously, a government leader, championing the largest and riskiest of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” An adviser on this topic labelled critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by ISDS claims. Warnings that “when companies start to realise the power they now possess, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with general mockery.

That prediction is now a reality. This year, oil and gas and mining firms have initiated a historic level of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – state efforts to halt climate breakdown. Firms have thus far won $114bn through ISDS, of which oil majors have obtained the majority. That represents the combined GDP