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What is your reckon our political system functions? Maybe something like this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. That's it. Yet, that used to be how it used to work. No longer.

The Emergence of Offshore Courts

In the modern era, foreign corporations, along with the billionaires that control them, have the power to sue governments for the policies they pass, at private courts made up of business advocates. The cases are held away from public scrutiny. Differing from national judiciaries, these bodies grant no opportunity to appeal or legal review. The general public cannot take a case to them, nor can our government, or even companies headquartered in this country. Access is granted exclusively to businesses operating from foreign soil.

When a secret court determines that a government measure may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

This compensation represent not tangible damages but funds the tribunal officials decide the company might otherwise have made. The administration may have to abandon its policy. It becomes deterred from enacting future policies along the same lines, worried about being sued.

A Mechanism Running Rampant

Record numbers of disputes are being brought, as firms take cues from each other, and private equity fund legal actions for a share of a cut of the awards. The consequence? Sovereignty and democracy are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the rulings taken by legislatures is that this stipulation has been inserted – absent public approval, and typically amid a climate of extreme secrecy – inside bilateral investment treaties.

A Specific Example: The Whitehaven Coal Mine

Twelve months ago, activists won a great victory at the high court. The justice determined that plans to dig the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no consequence on national carbon targets. The new government then withdrew the licence the previous administration had approved. Currently, this legal outcome could be compromised by an offshore tribunal answering to exclusively the companies filing the suit.

During August, a company whose final controllers are located in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. Citizens have no clear indication how much this sum represents. Who is representing it in opposition to the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The administration makes a decision, the domestic court validates it, then a foreign company disputes it through an unaccountable private court, and a member of our parliament represents its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows little of the case so far, but it seems likely that he may employ the tribunal to challenge the restrictions the UK imposed on him following the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, claiming $16bn: equivalent to half of state'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 utilising seized oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments could be blocking the money Ukraine urgently requires.

Misleading Claims and Escalating Costs

We were assured that these events were not possible. Previously, a senior politician, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” An adviser on this topic described critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations needed to fear these lawsuits. Warnings that “when companies begin to understand the influence they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. This year, fossil fuel and resource corporations have lodged a unprecedented number of cases against nations rich and poor, contesting – similar to the Cumbrian coalmine – official measures to stop climate breakdown. Firms have to date won vast sums via ISDS, of which oil majors have secured the majority. That equates to the combined GDP