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Can you perceive our system of government functions? Maybe similar to this. We elect MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law is maintained by the courts. That's it. Well, that was how it used to work. No longer.

The Advent of Offshore Tribunals

Nowadays, overseas companies, and the oligarchs that control them, are able to litigate against nation states for the laws they pass, at offshore tribunals staffed by commercial attorneys. The cases are held in secret. Differing from national judiciaries, these bodies provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, including businesses based in this country. The door is open only to corporations operating from foreign soil.

When a secret court finds that a law or policy may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, even billions.

This compensation are based not on actual losses but compensation the arbitrators conclude the company might otherwise have made. The government could be forced to rescind the measure. It is discouraged from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of disputes are being filed, as firms learn from each other, and investment funds fund legal actions for a share of a cut of the takings. The result? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the decisions made by elected bodies is that this clause has been incorporated – without public consent, and frequently under conditions of extreme secrecy – into bilateral investment treaties.

A Specific Instance: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The justice determined that plans to excavate the first new deep coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no impact on national carbon targets. The Labour government subsequently revoked the consent the former government had granted. Today, this success could be compromised by an foreign court accountable to no one but the companies bringing the case.

Last August, a firm whose beneficial owners reside in the offshore financial centre initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was established to adjudicate on it.

This firm is suing the UK for the revenue it would have generated if the mine had been allowed to go ahead. The public has little idea how much this might be. What legal team is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the noted patriot Geoffrey Cox. The government makes a decision, the domestic court supports it, then a overseas corporation challenges it through an secretive arbitration panel, and a member of our parliament represents its behalf.

The Russian Case

Simultaneously that the tribunal on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case at present, but it is highly possible that he will utilise the tribunal to fight the restrictions the UK enacted against him after the war in Ukraine. He has already started suing another European state for this reason, seeking $16bn: equivalent to half of government’s yearly budget. Included in the legal team acting for him in that case? a prominent lawyer, wife of the former British prime minister.

International law scholars contend that the EU’s procrastination in leveraging immobilised state funds as guarantee for its financial support package is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that such things wouldn’t happen. Previously, a senior politician, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and there has not been a issue in the past.” An adviser on this matter labelled campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “once firms grasp the authority bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were met with widespread derision.

That threat is now a reality. This year, oil and gas and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Companies have thus far won vast sums through ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP