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Can you reckon our political system operates? Maybe similar to this. We elect MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that was how it once functioned. Those days are over.

The Emergence of Offshore Tribunals

In the modern era, overseas companies, and the billionaires who own them, have the power to sue nation states for the laws they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held behind closed doors. Differing from national judiciaries, these tribunals grant no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, or even enterprises operating from this country. The door is open solely for businesses registered abroad.

Should an arbitration panel determines that a legislative action could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, even billions.

These sums are based not on real financial harm but compensation the panel members determine the company could potentially have made. The administration may have to rescind the measure. It becomes deterred from enacting future policies of a similar nature, for fear of being sued.

A Mechanism Running Rampant

Unprecedented levels of cases are being brought, as firms observe each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The consequence? National sovereignty and popular rule are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the choices made by legislatures is that this stipulation has been inserted – absent public approval, and often in conditions of profound opacity – within international trade agreements.

A Real-World Example: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the High Court. The judge found that plans to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration later cancelled the consent the Tories had issued. Now, this victory is under threat by an secret arbitration panel accountable to only the corporations petitioning it.

During August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings versus the UK government. Last week a tribunal in the US capital was established to hear it.

The claimant is litigating against the UK for the profits it could have earned if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. What legal team is acting on its behalf in opposition to the British government? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The government makes a decision, the high court validates it, then a overseas corporation contests it through an undemocratic private court, and a elected official works for its behalf.

A Sanctions Case

Concurrently that the panel on the coalmine case was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case so far, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg with similar intent, demanding $16bn: an amount representing half state's annual revenue. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Legal experts argue that the EU’s procrastination in leveraging immobilised state funds as collateral for its financial support package arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Misleading Claims and Escalating Costs

The public was told that such things could not occur. Previously, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” An adviser on this topic described campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations should be concerned by these lawsuits. Predictions that “once firms grasp the authority they’ve been granted, they will shift their focus from the weak nations to the strong ones” were dismissed with scepticism.

That threat has now materialised. In the current period, energy and resource corporations have filed a historic level of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to stop environmental catastrophe. Corporations have to date won vast sums by using ISDS, of which fossil fuel companies have secured $84bn. That is equivalent to the combined GDP