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How do you perceive our political system functions? It could be similar to this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. That's it. Well, that’s how it used to work. Those days are over.

The Advent of Shadow Tribunals

Nowadays, foreign corporations, and the billionaires who own them, have the power to sue nation states for the policies they pass, at offshore tribunals composed of commercial attorneys. The cases are held in secret. Differing from national judiciaries, these bodies grant no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, including companies based in this country. Access is granted exclusively to corporations operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, potentially billions.

These sums represent not real financial harm but funds the arbitrators determine the company could potentially have made. The state may have to drop the legislation. It will be deterred from enacting future policies of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Record numbers of legal actions are being initiated, as companies observe each other, and hedge funds finance suits in return for a portion of the settlements. The outcome? Democratic sovereignty and popular rule are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the choices taken by legislatures is that this provision has been written – without public consent, and frequently under conditions of profound opacity – within trade treaties.

A Real-World Case: The UK Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer found that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine would have had no consequence on climate commitments. The incoming administration later cancelled the consent the previous administration had issued. Now, this victory is under threat by an offshore tribunal accountable to exclusively the corporations bringing the case.

In August, a corporate entity whose final controllers are located in the offshore financial centre lodged a claim challenging the UK government. Last week a arbitration panel in Washington DC was set up to hear it.

The company is suing the UK for the profits it could have earned if the mine had received permission to go ahead. Citizens have no idea how much this could amount to. Who is serving as its counsel challenging the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the high court upholds it, then a international entity disputes it through an secretive arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he may employ the tribunal to fight the penalties the UK imposed on him subsequent to the war in Ukraine. He has previously initiated proceedings against another European state on these grounds, demanding $16bn: half that government’s annual revenue. Included in the lawyers acting for him in that case? a prominent lawyer, married to the ex-UK leader.

Legal experts believe that the EU’s delay in utilising seized Russian assets as security for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that these events were not possible. In 2014, a former prime minister, advocating for the largest and riskiest of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” A consultant on this issue labelled campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about such legal actions. Warnings that “when companies start to realise the influence they now possess, they will redirect their efforts from the weak nations to the strong ones” were met with scepticism.

That prediction has now materialised. In the current period, energy and mining firms have filed a record number of cases against nations rich and poor, opposing – like the example of the Cumbrian coalmine – state efforts to prevent global warming. Firms have thus far won $114bn by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP