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What is your reckon our political system functions? Perhaps along the lines of this. We elect MPs. They vote on bills. When a majority is obtained, the bills pass into law. The law is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals that control them, can sue nation states for the regulations they pass, at offshore tribunals made up of business advocates. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies allow no right of appeal or oversight by judges. You or I cannot take a case to them, nor can our government, including businesses operating from this country. They are open exclusively to corporations registered abroad.

If a tribunal determines that a legislative action might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, potentially billions.

These sums constitute not real financial harm but compensation the tribunal officials conclude the company could potentially have made. The state could be forced to drop the legislation. It is deterred from passing future laws in that area, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being filed, as firms take cues from each other, and investment funds fund legal actions for a share of a cut of the takings. The outcome? Sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the choices enacted by parliaments is that this provision has been incorporated – without public consent, and often in a climate of profound opacity – into trade treaties.

A Specific Instance: The Cumbrian Coal Mine

A year ago, environmental campaigners secured a significant win at the high court. The justice found that schemes to excavate the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine could have zero effect on climate commitments. The Labour government subsequently revoked the consent the Tories had granted. Today, this legal outcome could be compromised by an offshore tribunal accountable to only the companies petitioning it.

During August, a corporate entity whose ultimate owners are located in the tax haven filed a lawsuit challenging the UK government. Recently a tribunal in the US capital was set up to consider the case.

The company is litigating against the UK for the revenue it might have made if the mine had been allowed to proceed. We have no idea how much this might be. Which individual is representing it challenging the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the domestic court validates it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

A Sanctions Case

Simultaneously that the court on the coalmine case was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case so far, but it is highly possible that he’ll use the tribunal to contest the restrictions the UK levied against him following the war in Ukraine. He has previously filed a claim against Luxembourg with similar intent, claiming $16bn: equivalent to half of nation's yearly budget. Among the legal team acting for him in that case? Cherie Blair, wife of the previous PM.

International law scholars argue that the EU’s hesitation in using frozen Russian assets as guarantee for its financial support package stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations could be blocking the finance Ukraine critically depends on.

False Assurances and Mounting Costs

We were assured that these scenarios wouldn’t happen. In 2014, a senior politician, advocating for the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this topic labelled campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations had to worry about such legal actions. Warnings that “as corporations begin to understand the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has now materialised. In the current period, oil and gas and resource corporations have lodged a record number of claims against nations across the economic spectrum, challenging – like the example of the UK mine – government attempts to prevent climate breakdown. Corporations have so far won vast sums through ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP