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What is your understand our political system works? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Yet, that was how it operated in the past. No longer.

The Emergence of Offshore Courts

Nowadays, international firms, and the wealthy individuals behind them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of commercial attorneys. The cases are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, including enterprises based in this country. The door is open exclusively to entities based overseas.

Should an arbitration panel finds that a legislative action might diminish the corporation’s expected profits, it may order compensation of vast sums, even billions.

This compensation are based not on tangible damages but compensation the panel members conclude the company might otherwise have made. The state might be compelled to abandon its policy. It will be discouraged from enacting future policies of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as companies learn from each other, and private equity fund legal actions in return for a cut of the settlements. The outcome? Sovereignty and democracy are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the choices enacted by legislatures is that this provision has been inserted – absent public approval, and typically amid conditions of profound opacity – inside international trade agreements.

A Concrete Case: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the senior court. The justice found that proposals to open the first deep coalmine in the UK for a generation, in Cumbria, were illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have zero effect on our carbon budgets. The new government then withdrew the permission the Tories had granted. Currently, this victory faces being overturned by an foreign court reporting to exclusively the corporations bringing the case.

Last August, a company whose final controllers reside in the Cayman Islands initiated proceedings challenging the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been permitted to proceed. We have no clear indication how much this might be. Which individual is serving as its counsel against the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a international entity challenges it through an secretive arbitration panel, and a sitting MP works for its behalf.

The Russian Case

Simultaneously that the tribunal on the coalmine case was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he may employ the arbitration process to contest the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has previously started suing another European state with similar intent, demanding $16bn: equivalent to half of nation's yearly income. Part of the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over elected governments could be blocking the funds Ukraine urgently requires.

Empty Promises and Growing Risks

Politicians promised that such things wouldn’t happen. In 2014, a former prime minister, championing the biggest and most dangerous of all such treaties, declared: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this matter accused activists of “alarmism … in reality, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries needed to fear these lawsuits. Warnings that “once firms begin to understand the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat has come to pass. Recently, energy and mining firms have lodged a unprecedented number of cases against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – official measures to prevent climate breakdown. Corporations have thus far won $114bn by using ISDS, of which oil majors have obtained the majority. That equates to the combined GDP