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How do you understand our political system works? Perhaps similar to this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. However, that was how it once functioned. No longer.

The Emergence of Shadow Courts

Today, foreign corporations, along with the oligarchs who own them, are able to litigate against governments for the policies they pass, at offshore tribunals made up of commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these bodies provide no avenue for appeal or legal review. You or I are unable to file a case to them, and neither can our government, or even enterprises based in this country. They are open solely for entities registered abroad.

Should an arbitration panel finds that a legislative action could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, potentially billions.

These sums are based not on real financial harm but money the tribunal officials determine the company could potentially have made. The state may have to drop the legislation. It is discouraged from passing future laws of a similar nature, due to the risk of being sued.

A System Spiralling Out of Control

Historically high figures of legal actions are being initiated, as corporations observe each other, and hedge funds finance suits in return for a cut of the settlements. The outcome? National sovereignty and democracy are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the choices made by parliaments is that this clause has been inserted – without public consent, and often in an atmosphere of profound opacity – inside international trade agreements.

A Specific Instance: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the senior court. The presiding officer found that schemes to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine could have no impact on our carbon budgets. The new government subsequently revoked the consent the former government had approved. Now, this success could be compromised by an offshore tribunal accountable to only the corporations bringing the case.

During August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings against the UK government. Recently a dispute settlement body in the United States was convened to hear it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been permitted to commence operations. We have no clear indication how much this might be. Who is acting on its behalf in opposition to the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The government passes a law, the domestic court supports it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

Concurrently that the court on the coal mine dispute was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case at present, but it seems likely that he’ll use the arbitration process to fight the penalties the UK enacted against him following the Russian aggression. He has already started suing another European state on these grounds, seeking sixteen billion dollars: an amount representing half nation's yearly income. Among the lawyers representing him there? a prominent lawyer, wife of the former British prime minister.

Legal experts contend that the EU’s procrastination in using frozen state funds as guarantee for its financial support package is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that such things could not occur. Years ago, a former prime minister, championing the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement upon trade deal and there has never been a issue in the past.” An adviser on this topic described campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by ISDS claims. Warnings that “once firms begin to understand the authority bestowed upon them, they will turn their attention from the weak nations to the developed economies” were dismissed with widespread derision.

That threat is now a reality. Recently, energy and mining firms have lodged a record number of claims against nations rich and poor, challenging – like the example of the Cumbrian coalmine – official measures to prevent global warming. Firms have to date won vast sums via ISDS, of which energy giants have secured the majority. That represents the combined GDP