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What is your understand our political system operates? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. The law is maintained by the courts. That's it. Well, that used to be how it operated in the past. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, foreign corporations, or the wealthy individuals that control them, can sue elected administrations for the laws they pass, at offshore tribunals composed of commercial attorneys. These proceedings are conducted behind closed doors. In contrast to domestic courts, these tribunals provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. The door is open exclusively to entities registered abroad.

If a tribunal determines that a government measure could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, even billions.

This compensation are based not on actual losses but funds the arbitrators determine the company would perhaps have made. The administration might be compelled to drop the legislation. It becomes hesitant to introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of legal actions are being filed, as companies learn from each other, and private equity fund legal actions for a share of a cut of the settlements. The consequence? National sovereignty and democracy are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the decisions taken by elected bodies is that this provision has been inserted – without public consent, and often in an atmosphere of total confidentiality – into trade treaties.

A Specific Instance: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer found that schemes to dig the first new deep coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the permission the former government had granted. Today, this victory is under threat by an foreign court answering to only the companies bringing the case.

During August, a firm whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in the US capital was convened to hear it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. We have no clear indication how much this sum represents. What legal team is representing it challenging the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot the MP. The state passes a law, the national judiciary supports it, then a foreign company contests it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Case

On the same day that the tribunal on the coal mine dispute was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case so far, but it is highly possible that he may employ the tribunal to contest the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has previously filed a claim against a small nation with similar intent, claiming sixteen billion dollars: equivalent to half of government’s yearly income. Part of the legal team representing him there? Cherie Blair, married to the ex-UK leader.

Trade specialists argue that the EU’s hesitation in using frozen oligarchs' funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over democratic administrations could be blocking the funds Ukraine desperately needs.

Misleading Claims and Growing Threats

The public was told that these scenarios wouldn’t happen. In 2014, a government leader, championing the most significant and hazardous of all investment pacts, told us: “We’ve signed investment treaty upon trade deal and there has not been a problem in the past.” An adviser on this matter labelled activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations had to worry about such legal actions. Warnings that “as corporations grasp the power they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That threat has come to pass. This year, energy and resource corporations have initiated a historic level of cases against nations rich and poor, opposing – similar to the UK mine – state efforts to halt environmental catastrophe. Firms have so far won $114bn by using ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP