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How do you reckon our political system works? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Legislation is upheld by the courts. That's it. Well, that used to be how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

Nowadays, overseas companies, or the wealthy individuals that control them, have the power to sue governments for the policies they pass, at private courts staffed by business advocates. Such disputes take place away from public scrutiny. Differing from national judiciaries, these bodies allow no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, or even companies operating from this country. The door is open exclusively to businesses registered abroad.

If a tribunal determines that a government measure could harm the corporation’s expected profits, it can award damages of vast sums, potentially billions.

These sums constitute not tangible damages but funds the tribunal officials conclude the company would perhaps have made. The administration could be forced to rescind the measure. It will be hesitant to introducing similar legislation in that area, worried about incurring a lawsuit.

A System Running Rampant

Historically high figures of disputes are being filed, as firms learn from each other, and investment funds finance suits for a share of a cut of the takings. The consequence? Sovereignty and popular rule are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede a country's own laws and the decisions taken by legislatures is that this clause has been written – absent public approval, and often in a climate of total confidentiality – into bilateral investment treaties.

A Concrete Example: The UK Coalmine

Last year, activists won a great victory at the High Court. The judge ruled that proposals to open the first deep coalmine in the UK for 30 years, in northwest England, had been wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have had zero effect on climate commitments. The incoming administration then withdrew the consent the former government had approved. Now, this success could be compromised by an offshore tribunal reporting to no one but the corporations bringing the case.

During August, a firm whose ultimate owners are located in the offshore financial centre filed a lawsuit versus the UK government. Recently a tribunal in the US capital was set up to consider the case.

This firm is litigating against the UK for the revenue it could have earned if the mine had been permitted to proceed. We have little idea how much this might be. Who is acting on its behalf in opposition to the British government? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The government passes a law, the national judiciary supports it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coalmine case was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case at present, but it is highly possible that he may employ the arbitration process to contest the penalties the UK levied against him after the invasion of Ukraine. He has initiated proceedings against another European state with similar intent, seeking sixteen billion dollars: equivalent to half of state's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, married to the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over elected governments may be obstructing the finance Ukraine desperately needs.

Empty Promises and Growing Threats

We were assured that such things wouldn’t happen. In 2014, a former prime minister, championing the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal upon trade deal and there has never been a case in the past.” An adviser on this topic described critics of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations had to worry about such legal actions. Predictions that “once firms start to realise the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.

That prediction has now materialised. This year, fossil fuel and mining firms have filed a historic level of suits against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – government attempts to halt global warming. Companies have thus far won vast sums through ISDS, of which energy giants have secured $84bn. That represents the combined GDP