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How do you perceive our political system works? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Well, that used to be how it once functioned. No longer.

The Advent of Offshore Tribunals

In the modern era, foreign corporations, along with the billionaires that control them, can sue nation states for the laws they pass, at private courts composed of corporate lawyers. These proceedings take place in secret. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, nor can our government, including enterprises operating from this country. The door is open solely for corporations operating from foreign soil.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

This compensation represent not real financial harm but compensation the arbitrators decide the company might otherwise have made. The state might be compelled to abandon its policy. It is deterred from enacting future policies in that area, due to the risk of being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as corporations take cues from each other, and private equity finance suits in return for a cut of the takings. The result? Sovereignty and democracy are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the rulings enacted by parliaments is that this provision has been written – absent public approval, and typically amid a climate of profound opacity – into international trade agreements.

A Specific Instance: The Cumbrian Coalmine

A year ago, a conservation group secured a significant win at the senior court. The judge found that proposals to open the first deep coalmine in the UK for 30 years, in Cumbria, had been unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the consent the Tories had granted. Today, this success faces being overturned by an foreign court reporting to no one but the corporations filing the suit.

In August, a company whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. The previous week a tribunal in Washington DC was convened to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. The public has no idea how much this sum represents. Who is serving as its counsel in opposition to the UK administration? A member of parliament, and ex-law officer in the Conservative government, the noted patriot the MP. The government makes a decision, the high court supports it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a elected official acts on its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him following the Russian aggression. He has filed a claim against another European state for this reason, claiming $16bn: equivalent to half of state's yearly income. Included in the counsel representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars argue that the EU’s delay in utilising seized Russian assets as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over democratic administrations might be preventing the finance Ukraine critically depends on.

False Assurances and Mounting Costs

Politicians promised that these events wouldn’t happen. Previously, a government leader, promoting the largest and riskiest of all such treaties, declared: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An expert on this issue labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations begin to understand the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has now materialised. This year, energy and resource corporations have filed a record number of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – government attempts to prevent global warming. Firms have to date won $114bn via ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP