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Can you understand our political system operates? Perhaps similar to this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. However, that used to be how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

In the modern era, international firms, and the oligarchs behind them, have the power to sue nation states for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these tribunals allow no avenue for appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even enterprises operating from this country. They are open only to entities registered abroad.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it may order damages of hundreds of millions, even billions.

These sums represent not real financial harm but compensation the tribunal officials decide the company would perhaps have made. The administration may have to rescind the measure. It becomes deterred from enacting future policies of a similar nature, worried about incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of cases are being brought, as companies take cues from each other, and hedge funds fund legal actions in exchange for a cut of the takings. The result? Democratic sovereignty and democracy are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the rulings made by elected bodies is that this clause has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – into international trade agreements.

A Specific Instance: The Whitehaven Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The justice determined that proposals to excavate the first deep coalmine in the UK for three decades, in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have had no impact on national carbon targets. The incoming administration subsequently revoked the consent the former government had granted. Currently, this victory is under threat by an foreign court answering to no one but the entities bringing the case.

Last August, a firm whose final controllers are located in the tax haven lodged a claim challenging the UK government. Recently a tribunal in the US capital was set up to consider the case.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has no clear indication how much this might be. Who is representing it in opposition to the state? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The government passes a law, the high court validates it, then a foreign company contests it through an undemocratic private court, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the court on the mining lawsuit was convened, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case so far, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK levied against him after the war in Ukraine. He has already initiated proceedings against a small nation for this reason, demanding a colossal sum: equivalent to half of state's annual revenue. Included in the lawyers acting for him in that case? a prominent lawyer, wife of the previous PM.

International law scholars argue that the EU’s delay in using frozen state funds as security for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over elected governments may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Growing Costs

The public was told that these scenarios were not possible. Years ago, a former prime minister, championing the most significant and hazardous of all these agreements, told us: “Britain has agreed to trade agreement upon trade deal and we have never seen a case in the past.” A consultant on this issue accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about such legal actions. Warnings that “once firms grasp the influence bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were dismissed with scepticism.

That warning has now materialised. Recently, oil and gas and resource corporations have lodged a unprecedented number of cases against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – government attempts to stop global warming. Corporations have to date won $114bn by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP