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What is your reckon our political system works? Maybe something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that was how it operated in the past. Those days are over.

The Rise of Offshore Tribunals

Nowadays, overseas companies, and the oligarchs who own them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels staffed by business advocates. The cases are held away from public scrutiny. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even enterprises operating from this country. They are open solely for corporations based overseas.

When a secret court finds that a government measure could harm the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

These awards represent not real financial harm but money the panel members conclude the company might otherwise have made. The government might be compelled to rescind the measure. It becomes discouraged from introducing similar legislation along the same lines, worried about incurring a lawsuit.

A System Growing Exponentially

Historically high figures of legal actions are being initiated, as firms take cues from each other, and hedge funds finance suits in return for a share of the awards. The consequence? National sovereignty and democratic governance are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the decisions taken by elected bodies is that this clause has been written – without public consent, and often in conditions of profound opacity – into international trade agreements.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The justice ruled that plans to excavate the first deep coalmine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have no consequence on climate commitments. The incoming administration later cancelled the licence the Tories had issued. Now, this success faces being overturned by an secret arbitration panel answering to no one but the companies petitioning it.

In August, a corporate entity whose ultimate owners are based in the tax haven filed a lawsuit against the UK government. Last week a dispute settlement body in the United States was convened to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had received permission to proceed. We have little idea how much this might be. What legal team is acting on its behalf against the British government? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The government enacts a policy, the high court upholds it, then a foreign company challenges it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

The Russian Lawsuit

Simultaneously that the court on the coal mine dispute was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case at present, but it appears probable that he’ll use the tribunal to fight the restrictions the UK imposed on him after the war in Ukraine. He has filed a claim against a small nation with similar intent, claiming sixteen billion dollars: equivalent to half of government’s yearly income. Among the lawyers on his side? the wife of a former prime minister, wife of the former British prime minister.

International law scholars contend that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over sovereign states may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Growing Costs

Politicians promised that such things wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An expert on this matter labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear such legal actions. Predictions that “when companies begin to understand the authority bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were greeted by general mockery.

That prediction has come to pass. In the current period, energy and mining firms have initiated a record number of claims against nations across the economic spectrum, challenging – like the example of the UK mine – state efforts to halt climate breakdown. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP