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How do you understand our political system works? Maybe similar to this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. Well, that used to be how it operated in the past. Those days are over.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against governments for the policies they pass, at offshore tribunals staffed by corporate lawyers. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies allow no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises operating from this country. They are open only to businesses registered abroad.

If a tribunal determines that a law or policy might diminish the corporation’s expected profits, it may order damages of vast sums, potentially billions.

This compensation constitute not tangible damages but compensation the arbitrators decide the company could potentially have made. The government might be compelled to rescind the measure. It will be deterred from passing future laws along the same lines, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being filed, as companies learn from each other, and hedge funds bankroll lawsuits in exchange for a portion of the takings. The consequence? Democratic sovereignty and popular rule are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the decisions taken by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid an atmosphere of total confidentiality – inside trade treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, environmental campaigners won a great victory at the senior court. The judge determined that schemes to open the first major coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had zero effect on climate commitments. The incoming administration then withdrew the consent the former government had approved. Currently, this victory could be compromised by an foreign court reporting to no one but the corporations bringing the case.

During August, a company whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. The previous week a dispute settlement body in Washington DC was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to go ahead. Citizens have no idea how much this might be. Who is representing it challenging the state? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The state makes a decision, the high court validates it, then a international entity challenges it through an secretive private court, and a elected official represents its behalf.

An Oligarch's Case

On the same day that the tribunal on the mining lawsuit was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it seems likely that he will utilise the ISDS mechanism to challenge the sanctions the UK enacted against him after the invasion of Ukraine. He has previously started suing a small nation with similar intent, claiming a colossal sum: equivalent to half of state's annual revenue. Part of the legal team on his side? Cherie Blair, wife of the previous PM.

Legal experts argue that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Costs

Politicians promised that such things could not occur. In 2014, a former prime minister, promoting the most significant and hazardous of all investment pacts, stated: “We’ve signed trade deal upon trade deal and we have never seen a issue in the past.” An adviser on this matter described campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations begin to understand the authority bestowed upon them, they will shift their focus from the weak nations to the developed economies” were met with scepticism.

That prediction has come to pass. In the current period, oil and gas and resource corporations have initiated a record number of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – government attempts to stop climate breakdown. Corporations have so far won vast sums by using ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP