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What is your reckon our political system works? Maybe along the lines of this. We elect MPs. They debate and pass bills. If a majority is secured, the bills become law. Legislation is maintained by the courts. Simple as that. However, that’s how it used to work. No longer.

The Emergence of Shadow Tribunals

Nowadays, international firms, or the billionaires behind them, can sue elected administrations for the regulations they pass, at offshore tribunals composed of business advocates. These proceedings take place away from public scrutiny. Unlike our courts, these tribunals allow no opportunity to appeal or legal review. The general public cannot take a case to them, nor can our government, or even companies operating from this country. They are open only to entities based overseas.

If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it can award damages of hundreds of millions, even billions.

These awards are based not on tangible damages but compensation the tribunal officials conclude the company could potentially have made. The administration may have to drop the legislation. It becomes hesitant to enacting future policies along the same lines, worried about incurring a lawsuit.

A Process Running Rampant

Record numbers of disputes are being brought, as firms learn from each other, and private equity fund legal actions in return for a portion of the settlements. The outcome? National sovereignty and democratic governance are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the decisions enacted by elected bodies is that this stipulation has been incorporated – without democratic mandate, and often in a climate of profound opacity – within bilateral investment treaties.

A Real-World Instance: The Cumbrian Coal Mine

Last year, activists won a great victory at the High Court. The judge ruled that schemes to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine could have no impact on climate commitments. The new government later cancelled the licence the former government had granted. Today, this victory could be compromised by an offshore tribunal accountable to only the corporations petitioning it.

Last August, a corporate entity whose beneficial owners are located in the offshore financial centre initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was set up to adjudicate on it.

The claimant is litigating against the UK for the money it would have generated if the mine had been permitted to proceed. The public has no idea how much this might be. Which individual is acting on its behalf challenging the state? An elected representative, and former attorney-general in the previous government, that great patriot the MP. The state passes a law, the high court supports it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coal mine dispute was appointed, it was revealed 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 at present, but it seems likely that he’ll use the ISDS mechanism to challenge the restrictions the UK enacted against him following the war in Ukraine. He has already initiated proceedings against a small nation for this reason, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Among the lawyers acting for him in that case? Cherie Blair, wife of the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised state funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over democratic administrations might be preventing the money Ukraine desperately needs.

Misleading Claims and Growing Risks

The public was told that these events wouldn’t happen. Previously, a government leader, promoting the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” An adviser on this matter accused activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries had to worry about such legal actions. Cautionary notes that “as corporations grasp the power they’ve been granted, they will shift their focus from the weak nations to the strong ones” were dismissed with scepticism.

That threat has come to pass. Recently, fossil fuel and mining firms have filed a unprecedented number of suits against nations rich and poor, challenging – as in the case of the Whitehaven project – government attempts to prevent global warming. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP