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What is your reckon our political system functions? Maybe similar to this. We elect MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that’s how it used to work. Those days are over.

The Rise of Offshore Arbitration Panels

In the modern era, overseas companies, along with the billionaires who own them, can sue elected administrations for the regulations they pass, at private courts made up of business advocates. Such disputes take place away from public scrutiny. In contrast to domestic courts, these tribunals allow no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even companies based in this country. They are open only to corporations operating from foreign soil.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

These sums constitute not real financial harm but funds the tribunal officials conclude the company could potentially have made. The state could be forced to abandon its policy. It becomes deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A System Running Rampant

Record numbers of legal actions are being filed, as firms take cues from each other, and private equity finance suits in return for a cut of the settlements. The consequence? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the rulings enacted by elected bodies is that this clause has been incorporated – absent public approval, and frequently under an atmosphere of profound opacity – inside international trade agreements.

A Specific Instance: The UK Coal Mine

Last year, activists achieved a major legal triumph at the high court. The justice determined that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The new government later cancelled the permission the previous administration had issued. Now, this legal outcome faces being overturned by an foreign court answering to no one but the entities bringing the case.

During August, a company whose final controllers reside in the tax haven filed a lawsuit challenging the UK government. Recently a dispute settlement body in the US capital was convened to adjudicate on it.

This firm is suing the UK for the revenue it might have made if the mine had received permission to proceed. The public has little idea how much this could amount to. What legal team is serving as its counsel in opposition to the UK administration? A member of parliament, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The state enacts a policy, the high court validates it, then a overseas corporation contests it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case at present, but it is highly possible that he’ll use the ISDS mechanism to fight the penalties the UK imposed on him after the Russian aggression. He has previously initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: an amount representing half government’s annual revenue. Among the lawyers representing him there? a prominent lawyer, spouse of the ex-UK leader.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Risks

The public was told that these events could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An adviser on this issue labelled activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear ISDS claims. Predictions that “once firms grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were met with scepticism.

That threat has now materialised. In the current period, oil and gas and mining firms have filed a historic level of cases against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – state efforts to halt climate breakdown. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP