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How do you reckon our political system operates? Perhaps along the lines of this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. The law is maintained by the courts. End of story. Well, that’s how it used to work. Not anymore.

The Emergence of Offshore Tribunals

Today, overseas companies, or the wealthy individuals who own them, can sue nation states for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted away from public scrutiny. Unlike our courts, these panels allow no avenue for appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. Access is granted solely for businesses based overseas.

Should an arbitration panel determines that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, potentially billions.

This compensation represent not actual losses but compensation the panel members determine the company would perhaps have made. The administration could be forced to abandon its policy. It is discouraged from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Historically high figures of cases are being filed, as firms observe each other, and hedge funds bankroll lawsuits in return for a portion of the settlements. The consequence? National sovereignty and popular rule are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the choices made by parliaments is that this provision has been inserted – without democratic mandate, and typically amid conditions of profound opacity – within bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners won a great victory at the High Court. The justice ruled that plans to open the first major coal mine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine would have no impact on national carbon targets. The new government later cancelled the permission the previous administration had issued. Now, this success could be compromised by an offshore tribunal reporting to only the corporations filing the suit.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a tribunal in Washington DC was set up to hear it.

The company is suing the UK for the money it could have earned if the mine had been permitted to proceed. We have little idea how much this sum represents. Which individual is acting on its behalf against the British government? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a overseas corporation contests it through an unaccountable private court, and a sitting MP works for its behalf.

The Russian Case

On the same day that the panel on the mining lawsuit was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case to date, but it appears probable that he may employ the arbitration process to contest the penalties the UK enacted against him after the war in Ukraine. He has already started suing a small nation on these grounds, demanding sixteen billion dollars: equivalent to half of government’s yearly budget. Included in the counsel acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

International law scholars argue that the EU’s delay in utilising seized oligarchs' funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over sovereign states might be preventing the money Ukraine desperately needs.

Misleading Claims and Growing Costs

We were assured that such things wouldn’t happen. Previously, a senior politician, championing the biggest and most dangerous of all these agreements, told us: “The UK has signed trade deal after trade deal and we have never seen a issue in the past.” A consultant on this matter labelled activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries needed to fear these lawsuits. Cautionary notes that “once firms grasp the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were met with general mockery.

That threat has come to pass. Recently, energy and extraction companies have filed a unprecedented number of cases against nations rich and poor, contesting – like the example of the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have thus far won $114bn via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP