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Can you reckon our political system functions? Maybe along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that was how it used to work. No longer.

The Rise of Offshore Courts

Today, overseas companies, or the oligarchs behind them, have the power to sue governments for the regulations they pass, at offshore tribunals made up of business advocates. The cases are held in secret. Differing from national judiciaries, these panels allow no opportunity to appeal or legal review. You or I are barred from bringing a case to them, nor can our government, including companies operating from this country. The door is open exclusively to corporations operating from foreign soil.

Should an arbitration panel determines that a legislative action might diminish the corporation’s expected profits, it can award financial penalties of vast sums, potentially billions.

This compensation represent not tangible damages but funds the tribunal officials determine the company could potentially have made. The administration could be forced to drop the legislation. It is deterred from passing future laws along the same lines, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as companies take cues from each other, and hedge funds fund legal actions in return for a share of the awards. The outcome? Sovereignty and democracy are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the choices taken by legislatures is that this clause has been inserted – without public consent, and frequently under conditions of total confidentiality – into international trade agreements.

A Real-World Case: The Whitehaven Coalmine

Twelve months ago, environmental campaigners won a great victory at the senior court. The justice ruled that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The Labour government later cancelled the consent the Tories had issued. Currently, this legal outcome faces being overturned by an foreign court reporting to no one but the corporations bringing the case.

During August, a firm whose final controllers are located in the tax haven filed a lawsuit challenging the UK government. Recently a dispute settlement body in Washington DC was established to hear it.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been allowed to go ahead. The public has no idea how much this sum represents. Which individual is acting on its behalf against the state? A member of parliament, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coal mine dispute was convened, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case to date, but it appears probable that he may employ the arbitration process to challenge the penalties the UK levied against him following the invasion of Ukraine. He has filed a claim against Luxembourg for this reason, demanding a colossal sum: equivalent to half of government’s yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, married to the ex-UK leader.

International law scholars believe that the EU’s procrastination in utilising seized oligarchs' funds as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over elected governments might be preventing the finance Ukraine critically depends on.

Empty Promises and Mounting Costs

Politicians promised that these scenarios wouldn’t happen. Previously, a former prime minister, promoting the most significant and hazardous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this topic labelled campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms begin to understand the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were greeted by general mockery.

That threat has now materialised. This year, fossil fuel and mining firms have lodged a unprecedented number of suits against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to stop global warming. Corporations have so far won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP