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How do you perceive our political system operates? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that’s how it used to work. No longer.

The Emergence of Offshore Tribunals

Today, international firms, or the billionaires who own them, are able to litigate against nation states for the laws they pass, at private courts made up of corporate lawyers. These proceedings take place in secret. Differing from national judiciaries, these panels allow no right of appeal or legal review. You or I are unable to file a case to them, nor can our government, or even companies headquartered in this country. Access is granted only to corporations registered abroad.

When a secret court finds that a law or policy might diminish the corporation’s anticipated profits, it can award compensation of vast sums, even billions.

These awards constitute not actual losses but compensation the panel members conclude the company could potentially have made. The government might be compelled to rescind the measure. It will be hesitant to passing future laws of a similar nature, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as firms observe each other, and hedge funds fund legal actions in exchange for a share of the awards. The result? Democratic sovereignty and popular rule are now too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the rulings made by legislatures is that this clause has been inserted – without democratic mandate, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Concrete Example: The Whitehaven Coalmine

A year ago, activists won a great victory at the high court. The presiding officer determined that proposals to dig the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government subsequently revoked the consent the former government had approved. Today, this victory is under threat by an foreign court answering to no one but the companies petitioning it.

In August, a company whose final controllers are based in the tax haven filed a lawsuit versus the UK government. Recently a dispute settlement body in the US capital was established to hear it.

The company is litigating against the UK for the profits it would have generated if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is serving as its counsel against the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Challenge

Concurrently that the court on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case so far, but it seems likely that he’ll use the arbitration process to challenge the penalties the UK imposed on him after the war in Ukraine. He has previously started suing a small nation with similar intent, demanding a colossal sum: half that government’s yearly income. Part of the legal team on his side? Cherie Blair, married to the former British prime minister.

International law scholars argue that the EU’s hesitation in utilising seized Russian assets as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over elected governments could be blocking the funds Ukraine desperately needs.

Empty Promises and Growing Threats

Politicians promised that these scenarios were not possible. Years ago, a government leader, championing the most significant and hazardous of all these agreements, told us: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An adviser on this issue labelled activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “as corporations grasp the influence they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That threat has now materialised. In the current period, oil and gas and mining firms have filed a record number of suits against nations across the economic spectrum, contesting – like the example of the Whitehaven project – official measures to prevent environmental catastrophe. Companies have to date won $114bn through ISDS, of which energy giants have obtained the majority. That represents the combined GDP