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What is your reckon our political system functions? It could be along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation 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 oligarchs behind them, can sue nation states for the policies they pass, at secret arbitration panels composed of business advocates. The cases are conducted away from public scrutiny. In contrast to domestic courts, these tribunals provide no avenue for appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. They are open only to corporations registered abroad.

Should an arbitration panel rules that a legislative action might diminish the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These sums represent not actual losses but compensation the arbitrators conclude the company might otherwise have made. The administration might be compelled to abandon its policy. It is discouraged from introducing similar legislation in that area, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as corporations take cues from each other, and private equity finance suits in return for a portion of the settlements. The consequence? National sovereignty and democracy are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the decisions enacted by elected bodies is that this stipulation has been incorporated – without democratic mandate, and frequently under an atmosphere of extreme secrecy – within international trade agreements.

A Real-World Instance: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer found that plans to open the first new deep coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have no impact on climate commitments. The Labour government subsequently revoked the consent the previous administration had approved. Currently, this victory is under threat by an secret arbitration panel answering to only the entities bringing the case.

In August, a firm whose final controllers are based in the Cayman Islands lodged a claim versus the UK government. Last week a dispute settlement body in the United States was set up to hear it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to commence operations. The public has no idea how much this could amount to. Who is acting on its behalf in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the national judiciary supports it, then a foreign company contests it through an unaccountable private court, and a elected official works for its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the mining lawsuit was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. The public knows little of the case to date, but it seems likely that he will utilise the arbitration process to challenge the restrictions the UK enacted against him after the invasion of Ukraine. He has already started suing another European state on these grounds, claiming a colossal sum: half that state's annual revenue. Included in the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts contend that the EU’s hesitation in leveraging immobilised state funds as security for its financial support package stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the funds Ukraine urgently requires.

Empty Promises and Growing Costs

The public was told that these scenarios were not possible. Previously, a former prime minister, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” An expert on this topic accused activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “as corporations start to realise the power bestowed upon them, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That prediction is now a reality. Recently, fossil fuel and resource corporations have initiated a historic level of cases against nations rich and poor, opposing – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Companies have thus far won $114bn via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP