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Can you reckon our system of government functions? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Statutes is upheld by the courts. End of story. Well, that used to be how it operated in the past. Not anymore.

The Rise of Offshore Courts

Nowadays, foreign corporations, and the wealthy individuals who own them, have the power to sue governments for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings are held in secret. Unlike our courts, these tribunals grant no right of appeal or judicial review. The general public cannot take a case to them, just as our government, or even enterprises headquartered in this country. Access is granted solely for businesses registered abroad.

If a tribunal finds that a legislative action might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, running into billions.

This compensation constitute not real financial harm but compensation the tribunal officials conclude the company would perhaps have made. The government might be compelled to drop the legislation. It will be deterred from passing future laws in that area, worried about incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of legal actions are being brought, as corporations observe each other, and investment funds fund legal actions in exchange for a cut of the awards. The consequence? Sovereignty and democratic governance are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the rulings made by elected bodies is that this provision has been inserted – without public consent, and typically amid an atmosphere of profound opacity – inside international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

A year ago, activists won a great victory at the senior court. The justice determined that plans to open the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The Labour government later cancelled the permission the Tories had approved. Currently, this victory faces being overturned by an foreign court answering to no one but the entities bringing the case.

Last August, a firm whose ultimate owners are located in the tax haven lodged a claim challenging the UK government. Recently a tribunal in Washington DC was set up to hear it.

The company is suing the UK for the profits it would have generated if the mine had been allowed to go ahead. The public has no idea how much this could amount to. Who is representing it challenging the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court supports it, then a international entity disputes it through an unaccountable offshore tribunal, and a elected official works for its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case so far, but it seems likely that he will utilise the tribunal to contest the penalties the UK levied against him subsequent to the war in Ukraine. He has started suing Luxembourg with similar intent, claiming sixteen billion dollars: an amount representing half nation's yearly income. Part of the legal team representing him there? Cherie Blair, married to the previous PM.

Legal experts argue that the EU’s delay in leveraging immobilised oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over elected governments might be preventing the funds Ukraine desperately needs.

Misleading Claims and Mounting Risks

Politicians promised that these events wouldn’t happen. In 2014, a senior politician, promoting the biggest and most dangerous of all these agreements, declared: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” A consultant on this issue described campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies start to realise the power they now possess, they will turn their attention from the poorer states to the developed economies” were dismissed with widespread derision.

That warning is now a reality. In the current period, oil and gas and extraction companies have lodged a unprecedented number of cases against nations rich and poor, challenging – as in the case of the Whitehaven project – official measures to prevent environmental catastrophe. Companies have thus far won vast sums by using ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP