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Can you reckon our political system works? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. Well, that used to be how it used to work. No longer.

The Emergence of Offshore Courts

Today, international firms, and the billionaires who own them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes take place in secret. Differing from national judiciaries, these tribunals grant no avenue for appeal or oversight by judges. The general public cannot take a case to them, just as our government, including businesses operating from this country. The door is open only to entities registered abroad.

Should an arbitration panel finds that a government measure might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, running into billions.

These awards are based not on actual losses but funds the arbitrators conclude the company would perhaps have made. The administration might be compelled to abandon its policy. It is discouraged from enacting future policies in that area, for fear of being sued.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and hedge funds finance suits for a share of a portion of the takings. The result? National sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the choices taken by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under conditions of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The UK Coalmine

Last year, activists won a great victory at the high court. The presiding officer ruled that plans to open the first new deep coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine would have had zero effect on our carbon budgets. The new government later cancelled the consent the Tories had approved. Currently, this success faces being overturned by an offshore tribunal answering to no one but the corporations petitioning it.

Last August, a corporate entity whose beneficial owners are based in the Cayman Islands filed a lawsuit challenging the UK government. Last week a arbitration panel in the US capital was established to adjudicate on it.

The company is litigating against the UK for the profits it might have made if the mine had received permission to commence operations. We have little idea how much this could amount to. What legal team is serving as its counsel in opposition to the UK administration? An elected representative, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary supports it, then a foreign company challenges it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Concurrently that the court on the mining lawsuit was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case at present, but it seems likely that he’ll use the arbitration process to fight the sanctions the UK levied against him after the Russian aggression. He has filed a claim against another European state with similar intent, demanding a colossal sum: an amount representing half government’s annual revenue. Among the legal team representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts believe that the EU’s hesitation in leveraging immobilised state funds as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Escalating Risks

The public was told that these events could not occur. In 2014, a senior politician, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this matter described critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “when companies begin to understand the authority they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning is now a reality. In the current period, oil and gas and mining firms have initiated a record number of cases against nations both wealthy and developing, challenging – similar to the Whitehaven project – official measures to stop environmental catastrophe. Firms have to date won vast sums by using ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP