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How do you reckon our political system operates? Perhaps something like this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Well, that was how it used to work. No longer.

The Rise of Offshore Tribunals

In the modern era, overseas companies, or the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at secret arbitration panels made up of corporate lawyers. These proceedings are conducted in secret. In contrast to domestic courts, these bodies grant no avenue for appeal or oversight by judges. The general public cannot take a case to them, nor can our government, or even businesses based in this country. Access is granted solely for businesses registered abroad.

If a tribunal finds that a law or policy might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These awards are based not on real financial harm but compensation the panel members determine the company would perhaps have made. The administration might be compelled to drop the legislation. It becomes hesitant to passing future laws along the same lines, worried about facing litigation.

A Process Running Rampant

Historically high figures of cases are being filed, as corporations learn from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The outcome? Democratic sovereignty and democratic governance are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the decisions taken by parliaments is that this provision has been written – without public consent, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Real-World Case: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the high court. The justice found that proposals to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had issued. Today, this success is under threat by an offshore tribunal reporting to exclusively the entities bringing the case.

During August, a firm whose ultimate owners are located in the offshore financial centre initiated proceedings versus the UK government. Recently a tribunal in the US capital was set up to adjudicate on it.

The company is suing the UK for the money it could have earned if the mine had been permitted to go ahead. The public has no idea how much this sum represents. What legal team is acting on its behalf against the state? A sitting MP, and former attorney-general in the Conservative government, that great patriot Geoffrey Cox. The administration enacts a policy, the high court validates it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Challenge

On the same day that the tribunal on the coalmine case was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the sanctions the UK levied against him after the war in Ukraine. He has previously started suing another European state on these grounds, seeking $16bn: equivalent to half of nation's yearly budget. Part of the lawyers on his side? the wife of a former prime minister, wife of the ex-UK leader.

Legal experts believe that the EU’s delay in leveraging immobilised Russian assets as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, unaccountable authority over elected governments could be blocking the funds Ukraine critically depends on.

Empty Promises and Growing Threats

Politicians promised that these events could not occur. In 2014, a senior politician, advocating for the largest and riskiest of all such treaties, stated: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this issue labelled campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “once firms grasp the power they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with scepticism.

That threat is now a reality. This year, energy and extraction companies have initiated a unprecedented number of suits against nations rich and poor, contesting – like the example of the UK mine – government attempts to stop global warming. Companies have so far won $114bn through ISDS, of which energy giants have obtained $84bn. That represents the combined GDP