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What is your reckon our political system operates? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Well, that used to be how it operated in the past. Those days are over.

The Rise of Offshore Courts

Nowadays, international firms, and the billionaires who own them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels composed of business advocates. The cases are conducted in secret. Unlike our courts, these bodies provide no right of appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even companies operating from this country. The door is open exclusively to corporations operating from foreign soil.

When a secret court determines that a law or policy could harm the corporation’s projected profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation constitute not real financial harm but money the tribunal officials decide the company could potentially have made. The administration may have to rescind the measure. It is discouraged from passing future laws in that area, due to the risk of being sued.

A System Running Rampant

Unprecedented levels of disputes are being initiated, as companies take cues from each other, and hedge funds bankroll lawsuits in exchange for a cut of the awards. The consequence? Democratic sovereignty and democracy are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the rulings made by legislatures is that this provision has been written – without public consent, and frequently under conditions of profound opacity – within bilateral investment treaties.

A Real-World Example: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The justice determined that schemes to dig the first deep coalmine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had no consequence on national carbon targets. The incoming administration then withdrew the licence the previous administration had issued. Now, this success is under threat by an offshore tribunal reporting to exclusively the corporations bringing the case.

During August, a firm whose ultimate owners are based in the Cayman Islands initiated proceedings against the UK government. Last week a dispute settlement body in Washington DC was established to hear it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this sum represents. Who is acting on its behalf in opposition to the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary validates it, then a overseas corporation contests it through an undemocratic private court, and a sitting MP represents its behalf.

An Oligarch's Case

Simultaneously that the panel on the coalmine case was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case to date, but it appears probable that he’ll use the tribunal to fight the penalties the UK imposed on him following the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, demanding a colossal sum: an amount representing half nation's yearly income. Part of the counsel on his side? Cherie Blair, wife of the previous PM.

International law scholars believe that the EU’s delay in utilising seized state funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

Empty Promises and Escalating Risks

Politicians promised that these events wouldn’t happen. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, declared: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this topic described campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations grasp the authority they’ve been granted, they will turn their attention from the weak nations to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. Recently, fossil fuel and resource corporations have initiated a historic level of claims against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – official measures to stop climate breakdown. Corporations have so far won vast sums by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP