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How do you perceive our political system operates? Maybe something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Well, that was how it used to work. Not anymore.

The Rise of Offshore Courts

Nowadays, overseas companies, along with the wealthy individuals that control them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies provide no right of appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even companies operating from this country. Access is granted only to corporations operating from foreign soil.

When a secret court rules that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions, running into billions.

These sums constitute not actual losses but compensation the panel members decide the company could potentially have made. The government could be forced to rescind the measure. It is deterred from introducing similar legislation in that area, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being brought, as corporations take cues from each other, and private equity finance suits for a share of a portion of the settlements. The consequence? Democratic sovereignty and popular rule are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the rulings taken by parliaments is that this provision has been inserted – without democratic mandate, and frequently under conditions of profound opacity – into international trade agreements.

A Real-World Instance: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The presiding officer determined that proposals to excavate the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine could have zero effect on climate commitments. The Labour government subsequently revoked the permission the previous administration had granted. Today, this victory could be compromised by an offshore tribunal answering to only the entities filing the suit.

In August, a company whose final controllers are located in the tax haven lodged a claim against the UK government. The previous week a tribunal in the US capital was convened to consider the case.

The company is litigating against the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have no idea how much this might be. Which individual is acting on its behalf against the British government? A sitting MP, and former attorney-general in the Conservative government, that great patriot the MP. The state makes a decision, the domestic court supports it, then a overseas corporation disputes it through an secretive offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

On the same day that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case so far, but it is highly possible that he may employ the arbitration process to contest the restrictions the UK imposed on him after the Russian aggression. He has previously started suing a small nation with similar intent, demanding $16bn: half that government’s yearly budget. Included in the legal team on his side? the wife of a former prime minister, married to the previous PM.

Legal experts argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its financial support package arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

False Assurances and Mounting Costs

We were assured that these events were not possible. Years ago, a former prime minister, promoting the most significant and hazardous of all these agreements, told us: “The UK has signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this topic labelled activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the power they now possess, they will redirect their efforts from the weak nations to the developed economies” were dismissed with widespread derision.

That threat is now a reality. In the current period, energy and extraction companies have lodged a record number of claims against nations rich and poor, opposing – as in the case of the Whitehaven project – government attempts to stop global warming. Companies have so far won vast sums via ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP