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How do you understand our political system operates? It could be something like this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Statutes is maintained by the courts. End of story. Well, that was how it used to work. No longer.

The Rise of Offshore Tribunals

Nowadays, overseas companies, or the wealthy individuals that control them, have the power to sue nation states for the laws they pass, at offshore tribunals staffed by business advocates. These proceedings are conducted behind closed doors. Unlike our courts, these bodies provide no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, including businesses based in this country. They are open only to businesses registered abroad.

If a tribunal determines that a law or policy may compromise the corporation’s expected profits, it has the power to grant compensation of vast sums, running into billions.

This compensation constitute not actual losses but compensation the arbitrators decide the company could potentially have made. The government might be compelled to drop the legislation. It becomes hesitant to passing future laws of a similar nature, for fear of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms observe each other, and hedge funds finance suits in return for a cut of the settlements. The result? National sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the choices enacted by parliaments is that this provision has been inserted – without democratic mandate, and typically amid conditions of profound opacity – within bilateral investment treaties.

A Specific Example: The UK Coalmine

A year ago, activists won a great victory at the senior court. The presiding officer determined that plans to excavate the first deep coalmine in the UK for three decades, in northwest England, were found to be wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on climate commitments. The Labour government then withdrew the consent the former government had issued. Now, this victory could be compromised by an foreign court accountable to no one but the companies petitioning it.

During August, a company whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. The previous week a dispute settlement body in the US capital was convened to adjudicate on it.

The claimant is suing the UK for the profits it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. Which individual is serving as its counsel in opposition to the state? A sitting MP, and former attorney-general in the previous government, the noted patriot Geoffrey Cox. The government passes a law, the national judiciary supports it, then a international entity challenges it through an undemocratic private court, and a member of our parliament acts on its behalf.

The Russian Challenge

On the same day that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case at present, but it is highly possible that he will utilise the tribunal to contest the sanctions the UK enacted against him following the war in Ukraine. He has already filed a claim against a small nation with similar intent, demanding sixteen billion dollars: half that nation's yearly income. Part of the legal team acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Legal experts believe that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

Empty Promises and Escalating Risks

We were assured that these scenarios were not possible. In 2014, a government leader, championing the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty upon trade deal and there has not been a issue in the past.” A consultant on this issue accused critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “as corporations grasp the authority bestowed upon them, they will shift their focus from the weak nations to the developed economies” were dismissed with widespread derision.

That warning has come to pass. This year, energy and resource corporations have lodged a historic level of cases against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – state efforts to halt climate breakdown. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured $84bn. That represents the combined GDP