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How do you reckon our political system operates? Perhaps similar to this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills pass into law. The law is upheld by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Emergence of Offshore Courts

Nowadays, overseas companies, along with the billionaires behind them, can sue governments for the regulations they pass, at private courts staffed by business advocates. These proceedings are conducted away from public scrutiny. Unlike our courts, these bodies provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, including companies operating from this country. Access is granted only to entities registered abroad.

When a secret court finds that a legislative action may compromise the corporation’s projected profits, it can award damages of hundreds of millions of pounds, even billions.

These awards are based not on tangible damages but compensation the arbitrators determine the company would perhaps have made. The government could be forced to rescind the measure. It becomes hesitant to passing future laws of a similar nature, worried about being sued.

A Mechanism Running Rampant

Historically high figures of legal actions are being initiated, as corporations learn from each other, and private equity fund legal actions in exchange for a portion of the settlements. The consequence? Democratic sovereignty and democracy are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the choices enacted by legislatures is that this clause has been inserted – without democratic mandate, and often in conditions of extreme secrecy – inside trade treaties.

A Real-World Case: The UK Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The judge found that schemes to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government then withdrew the consent the previous administration had approved. Today, this success faces being overturned by an foreign court accountable to no one but the corporations filing the suit.

Last August, a company whose final controllers are located in the offshore financial centre filed a lawsuit against the UK government. Last week a arbitration panel in Washington DC was convened to consider the case.

The claimant is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. Citizens have no clear indication how much this sum represents. Who is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The state passes a law, the national judiciary validates it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

On the same day that the panel on the coalmine case was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case so far, but it seems likely that he may employ the ISDS mechanism to challenge the penalties the UK enacted against him following the Russian aggression. He has previously started suing a small nation with similar intent, claiming sixteen billion dollars: an amount representing half state's yearly budget. Part of the legal team acting for him in that case? Cherie Blair, wife of the former British prime minister.

Legal experts argue that the EU’s procrastination in utilising seized oligarchs' funds as collateral for its financial support package is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over elected governments may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Mounting Costs

Politicians promised that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” A consultant on this topic described critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies grasp the power they now possess, they will shift their focus from the poorer states to the wealthy nations” were met with widespread derision.

That warning has come to pass. Recently, fossil fuel and extraction companies have filed a unprecedented number of cases against nations rich and poor, opposing – like the example of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have thus far won $114bn via ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP