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How do you reckon our political system works? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that was how it used to work. Those days are over.

The Rise of Offshore Tribunals

In the modern era, overseas companies, and the billionaires behind them, are able to litigate against nation states for the policies they pass, at private courts staffed by corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these bodies grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even enterprises operating from this country. The door is open only to businesses based overseas.

If a tribunal rules that a government measure may compromise the corporation’s expected profits, it can award damages of vast sums, running into billions.

This compensation constitute not tangible damages but money the panel members determine the company could potentially have made. The government could be forced to rescind the measure. It will be discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of cases are being brought, as corporations observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The result? Sovereignty and democratic governance are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the choices made by parliaments is that this clause has been written – without democratic mandate, and often in a climate of total confidentiality – inside bilateral investment treaties.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The justice ruled that proposals to dig the first deep coalmine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government then withdrew the consent the former government had issued. Now, this victory faces being overturned by an foreign court reporting to exclusively the companies petitioning it.

In August, a firm whose final controllers are located in the offshore financial centre initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was convened to hear it.

This firm is litigating against the UK for the money it might have made if the mine had received permission to commence operations. Citizens have no clear indication how much this sum represents. Who is serving as its counsel in opposition to the British government? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court validates it, then a foreign company contests it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coal mine dispute was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. Details are little of the case at present, but it is highly possible that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him following the war in Ukraine. He has already started suing a small nation with similar intent, demanding $16bn: an amount representing half government’s yearly income. Among the lawyers representing him there? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars believe that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that such things were not possible. In 2014, a government leader, advocating for the largest and riskiest of all such treaties, stated: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” An adviser on this topic described activists of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear ISDS claims. Predictions that “when companies start to realise the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That warning has now materialised. Recently, fossil fuel and mining firms have lodged a historic level of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to prevent environmental catastrophe. Firms have so far won $114bn via ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP