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Can you perceive our political system functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Yet, that used to be how it used to work. Not anymore.

The Rise of Offshore Courts

Nowadays, overseas companies, and the oligarchs who own them, can sue governments for the laws they pass, at private courts composed of business advocates. Such disputes are conducted in secret. Unlike our courts, these bodies provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even companies headquartered in this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel determines that a law or policy may compromise the corporation’s projected profits, it can award damages of hundreds of millions, potentially billions.

These sums constitute not real financial harm but compensation the arbitrators conclude the company could potentially have made. The administration could be forced to abandon its policy. It is deterred from passing future laws of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Historically high figures of disputes are being initiated, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The consequence? Sovereignty and democracy are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices taken by parliaments is that this provision has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – within bilateral investment treaties.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, activists secured a significant win at the high court. The judge ruled that schemes to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The Labour government subsequently revoked the licence the former government had approved. Now, this legal outcome is under threat by an secret arbitration panel answering to no one but the companies bringing the case.

In August, a corporate entity whose beneficial owners reside in the tax haven lodged a claim challenging the UK government. Last week a dispute settlement body in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. Who is serving as its counsel challenging the state? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the high court upholds it, then a international entity challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

On the same day that the panel on the coal mine dispute was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has initiated proceedings against another European state with similar intent, demanding $16bn: equivalent to half of government’s yearly income. Part of the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s hesitation in utilising seized state funds as guarantee for its financial support package stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

The public was told that these events could not occur. Years ago, a government leader, advocating for the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade deal upon trade deal and there has never been a problem in the past.” A consultant on this issue accused campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about these lawsuits. Warnings that “once firms grasp the power they now possess, they will turn their attention from the weak nations to the developed economies” were greeted by scepticism.

That threat is now a reality. Recently, oil and gas and extraction companies have initiated a record number of cases against nations rich and poor, opposing – like the example of the Whitehaven project – government attempts to stop climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained $84bn. That represents the combined GDP