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How do you perceive our political system operates? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills become law. The law are enforced by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

Today, overseas companies, or the oligarchs that control them, have the power to sue governments for the policies they pass, at secret arbitration panels made up of business advocates. Such disputes take place in secret. In contrast to domestic courts, these tribunals grant no right of appeal or legal review. You or I cannot take a case to them, and neither can our government, or even businesses based in this country. They are open only to corporations operating from foreign soil.

If a tribunal rules that a government measure may compromise the corporation’s projected profits, it can award compensation of vast sums, potentially billions.

These awards are based not on tangible damages but funds the tribunal officials decide the company would perhaps have made. The state could be forced to drop the legislation. It will be discouraged from passing future laws of a similar nature, for fear of facing litigation.

A Process Growing Exponentially

Unprecedented levels of legal actions are being filed, as corporations observe each other, and hedge funds finance suits in return for a cut of the takings. The consequence? National sovereignty and democracy are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the decisions made by elected bodies is that this stipulation has been written – without democratic mandate, and frequently under an atmosphere of profound opacity – within trade treaties.

A Specific Case: The Cumbrian Coal Mine

Last year, environmental campaigners won a great victory at the senior court. The judge ruled that schemes to excavate the first deep coalmine in the UK for three decades, in northwest England, had been unlawfully approved by the previous government, which had endorsed the questionable argument that the mine could have no impact on national carbon targets. The incoming administration then withdrew the consent the Tories had issued. Now, this success is under threat by an foreign court answering to only the corporations filing the suit.

During August, a company whose final controllers are located in the Cayman Islands filed a lawsuit challenging the UK government. Recently a dispute settlement body in the United States was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to proceed. The public has little idea how much this could amount to. Who is representing it challenging the UK administration? A member of parliament, and former attorney-general in the previous government, that great patriot the MP. The state enacts a policy, the domestic court supports it, then a international entity disputes it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

The Russian Challenge

On the same day that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know nothing of the case to date, but it appears probable that he’ll use the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against Luxembourg for this reason, claiming a colossal sum: an amount representing half government’s yearly income. Included in the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized Russian assets as security for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine critically depends on.

Empty Promises and Growing Risks

We were assured that such things were not possible. Years ago, a former prime minister, promoting the largest and riskiest of all these agreements, told us: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” An expert on this topic labelled critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states had to worry about such legal actions. Warnings that “once firms start to realise the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning is now a reality. Recently, energy and mining firms have initiated a record number of cases against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – state efforts to stop environmental catastrophe. Firms have so far won vast sums via ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP