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How do you reckon our political system works? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. That's it. However, that was how it operated in the past. Those days are over.

The Rise of Offshore Tribunals

Today, overseas companies, or the wealthy individuals behind them, can sue elected administrations for the policies they pass, at secret arbitration panels staffed by business advocates. Such disputes are held away from public scrutiny. In contrast to domestic courts, these panels provide no opportunity to appeal or legal review. You or I cannot take a case to them, nor can our government, including enterprises headquartered in this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel finds that a law or policy could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These awards represent not tangible damages but compensation the panel members determine the company might otherwise have made. The government could be forced to abandon its policy. It will be deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Running Rampant

Record numbers of legal actions are being initiated, as corporations learn from each other, and private equity bankroll lawsuits for a share of a portion of the awards. The consequence? Democratic sovereignty and democracy are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the choices enacted by legislatures is that this provision has been inserted – absent public approval, and frequently under an atmosphere of extreme secrecy – inside trade treaties.

A Concrete Example: The UK Coal Mine

A year ago, a conservation group won a great victory at the High Court. The justice ruled that plans to open the first deep coalmine in the UK for a generation, in northwest England, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had no impact on our carbon budgets. The Labour government subsequently revoked the permission the former government had issued. Currently, this victory is under threat by an foreign court answering to only the companies filing the suit.

Last August, a firm whose final controllers are located in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in the US capital was established to hear it.

The company is litigating against the UK for the revenue it might have made if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. Who is acting on its behalf against the British government? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a international entity disputes it through an undemocratic offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

On the same day that the panel on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case at present, but it seems likely that he may employ the tribunal to challenge the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against another European state on these grounds, demanding $16bn: an amount representing half government’s yearly budget. Among the lawyers on his side? the wife of a former prime minister, wife of the former British prime minister.

Legal experts contend that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over elected governments may be obstructing the funds Ukraine desperately needs.

False Assurances and Escalating Threats

The public was told that these events wouldn’t happen. Previously, a senior politician, promoting the largest and riskiest of all such treaties, declared: “The UK has signed investment treaty upon trade deal and we have never seen a problem in the past.” An adviser on this topic described critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “once firms start to realise the power they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by scepticism.

That warning has come to pass. This year, energy and resource corporations have initiated a record number of suits against nations rich and poor, challenging – like the example of the Whitehaven project – state efforts to stop environmental catastrophe. Corporations have to date won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP