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Can you reckon our political system functions? Maybe something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that’s how it used to work. No longer.

The Emergence of Offshore Tribunals

Nowadays, foreign corporations, along with the oligarchs behind them, can sue elected administrations for the regulations they pass, at private courts staffed by corporate lawyers. These proceedings are held behind closed doors. Unlike our courts, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, including businesses headquartered in this country. They are open solely for entities registered abroad.

When a secret court finds that a government measure might diminish the corporation’s anticipated profits, it may order damages of vast sums, potentially billions.

This compensation are based not on actual losses but compensation the arbitrators determine the company could potentially have made. The government could be forced to drop the legislation. It is deterred from enacting future policies along the same lines, worried about being sued.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being initiated, as corporations observe each other, and investment funds bankroll lawsuits for a share of a cut of the settlements. The consequence? Sovereignty and democracy are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the decisions taken by parliaments is that this clause has been inserted – without public consent, and often in a climate of profound opacity – into trade treaties.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, environmental campaigners secured a significant win at the High Court. The presiding officer ruled that schemes to dig the first deep coalmine in the UK for a generation, in northwest England, were unlawfully approved by the previous government, which had accepted the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government later cancelled the permission the Tories had granted. Today, this legal outcome could be compromised by an foreign court answering to only the entities filing the suit.

In August, a corporate entity whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a arbitration panel in Washington DC was convened to adjudicate on it.

This firm is suing the UK for the revenue it would have generated if the mine had been permitted to proceed. The public has no clear indication how much this sum represents. Who is acting on its behalf in opposition to the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the high court upholds it, then a foreign company challenges it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

The Russian Lawsuit

On the same day that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he’ll use the tribunal to challenge the sanctions the UK imposed on him following the Russian aggression. He has previously filed a claim against another European state for this reason, demanding sixteen billion dollars: equivalent to half of state's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s delay in leveraging immobilised state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, unaccountable authority over sovereign states may be obstructing the money Ukraine urgently requires.

Misleading Claims and Escalating Risks

We were assured that these events wouldn’t happen. Years ago, a former prime minister, advocating for the largest and riskiest of all such treaties, declared: “The UK has signed investment treaty upon trade deal and we have never seen a case in the past.” An expert on this topic labelled activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “once firms begin to understand the power bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were met with general mockery.

That threat has come to pass. This year, energy and resource corporations have lodged a record number of suits against nations rich and poor, challenging – similar to the Whitehaven project – state efforts to prevent climate breakdown. Companies have thus far won $114bn by using ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP