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Can you reckon our political system functions? Maybe similar to this. We elect MPs. They vote on bills. When a majority is achieved, the bills pass into law. Statutes is upheld by the courts. Simple as that. Well, that was how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

Today, international firms, along with the wealthy individuals that control them, are able to litigate against nation states for the laws they pass, at offshore tribunals staffed by business advocates. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals grant no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses operating from this country. The door is open only to entities operating from foreign soil.

If a tribunal finds that a law or policy may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, even billions.

This compensation represent not real financial harm but money the arbitrators determine the company might otherwise have made. The government could be forced to drop the legislation. It is deterred from introducing similar legislation along the same lines, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being filed, as companies take cues from each other, and private equity bankroll lawsuits in exchange for a portion of the settlements. The outcome? National sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the choices enacted by parliaments is that this clause has been incorporated – without democratic mandate, and typically amid an atmosphere of extreme secrecy – within international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

Last year, activists won a great victory at the High Court. The presiding officer ruled that proposals to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no impact on national carbon targets. The new government subsequently revoked the permission the previous administration had issued. Now, this victory faces being overturned by an offshore tribunal answering to exclusively the corporations filing the suit.

Last August, a company whose final controllers reside in the Cayman Islands lodged a claim against the UK government. The previous week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to commence operations. We have no idea how much this sum represents. Who is serving as its counsel challenging the state? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The state makes a decision, the high court validates it, then a international entity challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

Simultaneously that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case so far, but it is highly possible that he may employ the arbitration process to fight the sanctions the UK imposed on him following the Russian aggression. He has filed a claim against Luxembourg with similar intent, claiming $16bn: equivalent to half of nation's yearly income. Among the lawyers on his side? Cherie Blair, wife of the previous PM.

International law scholars believe that the EU’s hesitation in using frozen Russian assets as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine critically depends on.

Empty Promises and Escalating Costs

We were assured that such things wouldn’t happen. Previously, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” An adviser on this matter labelled campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms start to realise the influence they now possess, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with scepticism.

That warning has now materialised. Recently, energy and resource corporations have initiated a record number of suits against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have so far won vast sums by using ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP