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Can you reckon our political system operates? Maybe something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that used to be how it once functioned. Not anymore.

The Advent of Secret Tribunals

Today, overseas companies, or the billionaires behind them, have the power to sue nation states for the policies they pass, at offshore tribunals staffed by commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these panels grant no right of appeal or legal review. You or I cannot take a case to them, and neither can our government, including enterprises operating from this country. Access is granted only to corporations based overseas.

If a tribunal finds that a law or policy may compromise the corporation’s anticipated profits, it can award damages of vast sums, running into billions.

This compensation represent not actual losses but funds the panel members determine the company would perhaps have made. The administration could be forced to abandon its policy. It becomes discouraged from enacting future policies along the same lines, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of cases are being initiated, as firms take cues from each other, and private equity finance suits for a share of a portion of the settlements. The result? Democratic sovereignty and democratic governance are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the choices made by parliaments is that this stipulation has been written – without democratic mandate, and often in conditions of profound opacity – into international trade agreements.

A Specific Example: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the High Court. The justice determined that plans to dig the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The incoming administration later cancelled the licence the previous administration had issued. Currently, this victory faces being overturned by an offshore tribunal answering to no one but the entities filing the suit.

Last August, a company whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. The previous week a arbitration panel in Washington DC was convened 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 little idea how much this sum represents. Who is acting on its behalf in opposition to the UK administration? An elected representative, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The government enacts a policy, the high court upholds it, then a international entity disputes it through an secretive arbitration panel, and a elected official acts on its behalf.

A Sanctions Case

Concurrently that the tribunal on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case to date, but it appears probable that he may employ the ISDS mechanism to challenge the restrictions the UK imposed on him following the invasion of Ukraine. He has already started suing another European state for this reason, seeking $16bn: equivalent to half of government’s yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that these scenarios wouldn’t happen. Years ago, a government leader, promoting the largest and riskiest of all these agreements, told us: “We’ve signed investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this topic accused activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states needed to fear such legal actions. Predictions that “as corporations begin to understand the influence bestowed upon them, they will turn their attention from the poorer states to the strong ones” were greeted by general mockery.

That threat has come to pass. In the current period, fossil fuel and extraction companies have initiated a unprecedented number of suits against nations rich and poor, challenging – like the example of the UK mine – state efforts to halt global warming. Firms have thus far won $114bn by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP