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Can you perceive our political system works? It could be along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. However, that was how it used to work. Those days are over.

The Emergence of Secret Arbitration Panels

Today, foreign corporations, along with the oligarchs that control them, have the power to sue governments for the laws they pass, at offshore tribunals made up of commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or legal review. You or I are unable to file a case to them, just as our government, or even businesses headquartered in this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel determines that a government measure might diminish the corporation’s projected profits, it can award damages of vast sums, running into billions.

These awards represent not real financial harm but funds the tribunal officials conclude the company might otherwise have made. The state might be compelled to abandon its policy. It becomes deterred from enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being initiated, as corporations learn from each other, and hedge funds finance suits in exchange for a portion of the settlements. The result? Democratic sovereignty and democracy are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the decisions taken by parliaments is that this provision has been incorporated – without public consent, and often in an atmosphere of profound opacity – into bilateral investment treaties.

A Specific Example: The Cumbrian Coal Mine

Last year, a conservation group achieved a major legal triumph at the senior court. The justice determined that proposals to open the first new deep coal mine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no impact on our carbon budgets. The incoming administration then withdrew the consent the Tories had approved. Currently, this legal outcome faces being overturned by an offshore tribunal accountable to only the companies bringing the case.

Last August, a corporate entity whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was established to consider the case.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to commence operations. We have little idea how much this might be. What legal team is representing it against the state? A sitting MP, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a international entity contests it through an unaccountable offshore tribunal, and a elected official works for its behalf.

The Russian Case

On the same day that the panel on the mining lawsuit was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he may employ the arbitration process to contest the penalties the UK levied against him following the war in Ukraine. He has initiated proceedings against Luxembourg on these grounds, seeking a colossal sum: half that government’s annual revenue. Part of the counsel on his side? the wife of a former prime minister, married to the ex-UK leader.

International law scholars argue that the EU’s delay in leveraging immobilised Russian assets as guarantee for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over democratic administrations could be blocking the finance Ukraine critically depends on.

Misleading Claims and Growing Threats

Politicians promised that these scenarios were not possible. Previously, a senior politician, championing the biggest and most dangerous of all such treaties, stated: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” An expert on this topic described campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “when companies begin to understand the power they’ve been granted, they will shift their focus from the poorer states to the strong ones” were met with widespread derision.

That threat has now materialised. This year, oil and gas and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to stop climate breakdown. Companies have so far won vast sums via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP