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How do you perceive our political system functions? It could be similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills become law. The law is upheld by the courts. That's it. Well, that’s how it operated in the past. No longer.

The Rise of Offshore Tribunals

Today, foreign corporations, or the wealthy individuals behind them, are able to litigate against governments for the laws they pass, at offshore tribunals composed of business advocates. Such disputes are held behind closed doors. In contrast to domestic courts, these tribunals grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. Access is granted only to businesses operating from foreign soil.

If a tribunal determines that a legislative action might diminish the corporation’s projected profits, it may order compensation of vast sums, running into billions.

This compensation constitute not tangible damages but compensation the arbitrators conclude the company would perhaps have made. The government might be compelled to abandon its policy. It becomes hesitant to enacting future policies of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Record numbers of legal actions are being initiated, as firms learn from each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The outcome? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the choices made by parliaments is that this stipulation has been written – without public consent, and often in conditions of extreme secrecy – inside trade treaties.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the high court. The presiding officer found that proposals to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on climate commitments. The incoming administration subsequently revoked the consent the Tories had approved. Currently, this success is under threat by an offshore tribunal accountable to only the companies petitioning it.

During August, a corporate entity whose final controllers are based in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was convened to consider the case.

The claimant is suing the UK for the revenue it might have made if the mine had received permission to go ahead. The public has little idea how much this could amount to. Who is representing it in opposition to the British government? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The government enacts a policy, the high court supports it, then a foreign company disputes it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coal mine dispute was convened, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case at present, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK levied against him after the war in Ukraine. He has started suing a small nation for this reason, demanding a colossal sum: half that state's yearly income. Part of the counsel acting for him in that case? a prominent lawyer, married to the ex-UK leader.

International law scholars believe that the EU’s delay in using frozen state funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the money Ukraine desperately needs.

Empty Promises and Mounting Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “The UK has signed trade agreement upon trade deal and there has never been a case in the past.” An expert on this issue described campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations needed to fear such legal actions. Predictions that “as corporations start to realise the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That warning has come to pass. In the current period, energy and resource corporations have filed a historic level of cases against nations rich and poor, challenging – like the example of the Cumbrian coalmine – official measures to prevent global warming. Companies have so far won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP