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How do you understand our political system works? It could be something like this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. However, that’s how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

In the modern era, overseas companies, or the wealthy individuals that control them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of business advocates. Such disputes take place away from public scrutiny. Differing from national judiciaries, these bodies allow no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even enterprises based in this country. Access is granted solely for entities operating from foreign soil.

Should an arbitration panel rules that a legislative action might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions, potentially billions.

These sums constitute not real financial harm but funds the panel members decide the company could potentially have made. The administration may have to drop the legislation. It becomes hesitant to enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being initiated, as companies observe each other, and private equity fund legal actions for a share of a portion of the awards. The consequence? National sovereignty and democratic governance are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the decisions enacted by legislatures is that this clause has been inserted – absent public approval, and frequently under a climate of total confidentiality – within trade treaties.

A Real-World Case: The Cumbrian Coalmine

A year ago, activists achieved a major legal triumph at the high court. The justice ruled that proposals to excavate the first new deep coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The new government later cancelled the permission the former government had issued. Currently, this victory faces being overturned by an offshore tribunal reporting to no one but the entities bringing the case.

In August, a firm whose ultimate owners reside in the tax haven initiated proceedings versus the UK government. Last week a tribunal in the US capital was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been permitted to proceed. We have no clear indication how much this sum represents. What legal team is representing it against the UK administration? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a international entity disputes it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Lawsuit

On the same day that the panel on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know little of the case so far, but it seems likely that he will utilise the ISDS mechanism to challenge the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, claiming $16bn: an amount representing half government’s yearly income. Included in the counsel representing him there? a prominent lawyer, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in leveraging immobilised Russian assets as security for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

We were assured that these scenarios wouldn’t happen. In 2014, a former prime minister, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” An adviser on this topic described critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations needed to fear such legal actions. Cautionary notes that “once firms begin to understand the influence they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with general mockery.

That threat is now a reality. Recently, fossil fuel and mining firms have lodged a historic level of claims against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – state efforts to prevent climate breakdown. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP