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How do you perceive our political system works? Maybe similar to this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Well, that used to be how it used to work. Those days are over.

The Rise of Offshore Courts

Nowadays, foreign corporations, and the wealthy individuals that control them, can sue governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. These proceedings are conducted in secret. Differing from national judiciaries, these panels provide no opportunity to appeal or judicial review. The general public are unable to file a case to them, nor can our government, including enterprises based in this country. They are open only to entities based overseas.

When a secret court finds that a government measure may compromise the corporation’s expected profits, it may order damages of hundreds of millions, even billions.

These sums are based not on actual losses but funds the panel members decide the company might otherwise have made. The government may have to abandon its policy. It will be discouraged from passing future laws in that area, worried about facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as companies observe each other, and investment funds bankroll lawsuits in exchange for a share of the takings. The outcome? Sovereignty and democratic governance are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the decisions enacted by parliaments is that this provision has been written – without public consent, and typically amid an atmosphere of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer found that schemes to dig the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the licence the former government had approved. Today, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the entities filing the suit.

Last August, a corporate entity whose beneficial owners reside in the Cayman Islands initiated proceedings versus the UK government. Last week a tribunal in the US capital was established to consider the case.

The claimant is litigating against the UK for the money it would have generated if the mine had received permission to go ahead. The public has little idea how much this might be. Who is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a overseas corporation contests it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case so far, but it seems likely that he’ll use the ISDS mechanism to fight the penalties the UK enacted against him after the Russian aggression. He has previously initiated proceedings against Luxembourg for this reason, demanding $16bn: half that government’s yearly income. Part of the legal team acting for him in that case? a prominent lawyer, married to the former British prime minister.

Trade specialists contend that the EU’s procrastination in leveraging immobilised state funds as collateral for its financial support package is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments might be preventing the money Ukraine critically depends on.

Misleading Claims and Growing Threats

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, championing the biggest and most dangerous of all these agreements, declared: “The UK has signed investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this matter labelled campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations had to worry about ISDS claims. Warnings that “when companies start to realise the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning has now materialised. Recently, oil and gas and extraction companies have filed a historic level of suits against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP