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Can you perceive our political system works? It could be similar to this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Statutes is upheld by the courts. End of story. Well, that was how it used to work. Those days are over.

The Advent of Offshore Tribunals

Today, international firms, or the oligarchs who own them, can sue elected administrations for the regulations they pass, at private courts made up of corporate lawyers. The cases are held in secret. In contrast to domestic courts, 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, or even companies operating from this country. They are open exclusively to businesses registered abroad.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it can award damages of vast sums, running into billions.

These sums represent not actual losses but compensation the tribunal officials conclude the company would perhaps have made. The administration might be compelled to rescind the measure. It will be discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies observe each other, and private equity bankroll lawsuits in return for a cut of the settlements. The result? Democratic sovereignty and popular rule are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the choices made by legislatures is that this provision has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – into bilateral investment treaties.

A Concrete Example: The UK Coalmine

Last year, a conservation group secured a significant win at the senior court. The justice ruled that proposals to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no impact on climate commitments. The new government later cancelled the licence the Tories had granted. Today, this success is under threat by an offshore tribunal accountable to no one but the companies bringing the case.

Last August, a firm whose ultimate owners are based in the offshore financial centre filed a lawsuit against the UK government. The previous week a dispute settlement body in the United States was convened to consider the case.

This firm is suing the UK for the money it might have made if the mine had been allowed to go ahead. We have no idea how much this could amount to. Who is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The administration passes a law, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic private court, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it is highly possible that he’ll use the arbitration process to contest the restrictions the UK imposed on him after the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, demanding $16bn: half that nation's yearly income. Among the legal team on his side? a prominent lawyer, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized state funds as collateral for its financial support package is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Escalating Costs

We were assured that these events could not occur. In 2014, a government leader, promoting the biggest and most dangerous of all these agreements, told us: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An expert on this matter accused critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “when companies grasp the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by general mockery.

That threat is now a reality. In the current period, oil and gas and resource corporations have initiated a unprecedented number of suits against nations both wealthy and developing, opposing – as in the case of the UK mine – government attempts to halt global warming. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP