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How do you understand 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 become law. The law is upheld by the courts. Simple as that. Yet, that’s how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Today, international firms, and the oligarchs behind them, are able to litigate against nation states for the laws they pass, at private courts made up of commercial attorneys. These proceedings are conducted behind closed doors. Unlike our courts, these tribunals provide no right of appeal or judicial review. The general public cannot take a case to them, just as our government, including companies operating from this country. The door is open solely for entities operating from foreign soil.

When a secret court rules that a legislative action could harm the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These sums represent not tangible damages but funds the panel members decide the company could potentially have made. The administration may have to drop the legislation. It will be discouraged from enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being brought, as firms observe each other, and private equity fund legal actions in return for a share of the takings. The result? Democratic sovereignty and popular rule are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the decisions taken by legislatures is that this provision has been written – without public consent, and frequently under a climate of extreme secrecy – within international trade agreements.

A Concrete Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the high court. The presiding officer found that proposals to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The Labour government subsequently revoked the consent the Tories had issued. Today, this legal outcome is under threat by an offshore tribunal answering to only the corporations petitioning it.

During August, a firm whose final controllers reside in the tax haven filed a lawsuit versus the UK government. The previous week a tribunal in Washington DC was set up to consider the case.

The company is seeking compensation from the UK for the profits it would have generated if the mine had received permission to go ahead. We have no idea how much this might be. Who is representing it in opposition to the UK administration? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the high court upholds it, then a foreign company contests it through an undemocratic private court, and a elected official works for its behalf.

The Russian Case

On the same day that the tribunal on the coalmine case was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he’ll use the arbitration process to fight the restrictions the UK levied against him following the invasion of Ukraine. He has filed a claim against a small nation with similar intent, seeking $16bn: equivalent to half of state's yearly income. Part of the lawyers representing him there? a prominent lawyer, married to the ex-UK leader.

Trade specialists contend that the EU’s delay in utilising seized Russian assets as security for its financial support package stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

False Assurances and Growing Risks

Politicians promised that such things were not possible. Years ago, a former prime minister, championing the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty upon trade deal and there has not been a problem in the past.” A consultant on this issue labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations start to realise the influence they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were greeted by general mockery.

That prediction has now materialised. This year, oil and gas and extraction companies have initiated a unprecedented number of claims against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to halt climate breakdown. Firms have to date won vast sums by using ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP