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What is your reckon our political system operates? Maybe along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation are enforced by the courts. Simple as that. Well, that’s how it used to work. Those days are over.

The Emergence of Offshore Courts

Today, international firms, or the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals staffed by business advocates. The cases are held behind closed doors. Differing from national judiciaries, these bodies provide no right of appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, including businesses based in this country. They are open only to businesses operating from foreign soil.

Should an arbitration panel finds that a legislative action could harm the corporation’s anticipated profits, it has the power to grant damages of vast sums, running into billions.

These awards represent not actual losses but funds the tribunal officials conclude the company might otherwise have made. The state might be compelled to rescind the measure. It will be hesitant to passing future laws in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as corporations take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The result? National sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the choices enacted by elected bodies is that this provision has been written – without democratic mandate, and typically amid conditions of total confidentiality – within trade treaties.

A Concrete Example: The UK Coal Mine

A year ago, a conservation group won a great victory at the High Court. The presiding officer determined that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have had zero effect on our carbon budgets. The new government later cancelled the consent the previous administration had approved. Currently, this victory is under threat by an offshore tribunal accountable to no one but the corporations bringing the case.

During August, a company whose final controllers reside in the offshore financial centre lodged a claim challenging the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

The claimant is suing the UK for the profits it might have made if the mine had been allowed to commence operations. The public has no idea how much this could amount to. What legal team is serving as its counsel against the state? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The state makes a decision, the domestic court upholds it, then a international entity challenges it through an undemocratic offshore tribunal, and a elected official represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it seems likely that he’ll use the tribunal to fight the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has previously started suing a small nation for this reason, seeking a colossal sum: equivalent to half of nation's yearly income. Part of the counsel representing him there? a prominent lawyer, wife of the former British prime minister.

Legal experts contend that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine urgently requires.

False Assurances and Mounting Risks

The public was told that such things wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An expert on this issue labelled activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries needed to fear ISDS claims. Predictions that “once firms grasp the authority bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.

That threat has now materialised. This year, energy and mining firms have filed a unprecedented number of cases against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – official measures to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP