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How do you reckon our political system operates? Perhaps something like this. We elect MPs. They vote on bills. If a majority is secured, the bills are enacted as law. The law is upheld by the courts. End of story. However, that used to be how it used to work. No longer.

The Rise of Shadow Tribunals

In the modern era, international firms, or the oligarchs who own them, can sue nation states for the laws they pass, at offshore tribunals made up of commercial attorneys. Such disputes take place behind closed doors. In contrast to domestic courts, these panels provide no opportunity to appeal or legal review. You or I are unable to file a case to them, and neither can our government, including businesses operating from this country. The door is open exclusively to corporations registered abroad.

Should an arbitration panel determines that a government measure might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

This compensation represent not real financial harm but compensation the arbitrators decide the company would perhaps have made. The administration might be compelled to drop the legislation. It will be deterred from introducing similar legislation along the same lines, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being filed, as companies take cues from each other, and investment funds finance suits in return for a cut of the settlements. The outcome? Sovereignty and popular rule are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the decisions enacted by legislatures is that this provision has been incorporated – without public consent, and frequently under conditions of extreme secrecy – inside international trade agreements.

A Real-World Example: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The judge determined that proposals to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no consequence on our carbon budgets. The new government then withdrew the consent the previous administration had granted. Now, this success is under threat by an foreign court accountable to only the companies filing the suit.

Last August, a firm whose beneficial owners are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a tribunal in the United States was set up to consider the case.

The company is seeking compensation from the UK for the profits it might have made if the mine had been allowed to go ahead. The public has little idea how much this could amount to. What legal team is acting on its behalf in opposition to the UK administration? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the high court validates it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coalmine case was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case so far, but it is highly possible that he will utilise the tribunal to fight the sanctions the UK imposed on him after the invasion of Ukraine. He has already filed a claim against a small nation on these grounds, demanding $16bn: half that state's yearly income. Among the legal team acting for him in that case? Cherie Blair, married to the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states might be preventing the finance Ukraine urgently requires.

False Assurances and Growing Costs

The public was told that such things could not occur. In 2014, a former prime minister, championing the biggest and most dangerous of all investment pacts, declared: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this topic labelled critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Cautionary notes that “when companies start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by scepticism.

That warning is now a reality. This year, energy and resource corporations have lodged a historic level of claims against nations both wealthy and developing, opposing – similar to the Whitehaven project – state efforts to prevent global warming. Companies have so far won vast sums by using ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP