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How do you reckon our system of government functions? Maybe similar to this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Well, that’s how it operated in the past. No longer.

The Emergence of Offshore Tribunals

In the modern era, overseas companies, or the oligarchs that control them, can sue governments for the regulations they pass, at secret arbitration panels staffed by business advocates. Such disputes are conducted in secret. Unlike our courts, these tribunals allow no right of appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even companies operating from this country. Access is granted solely for entities operating from foreign soil.

When a secret court finds that a government measure may compromise the corporation’s anticipated profits, it can award financial penalties of vast sums, potentially billions.

These sums are based not on actual losses but compensation the arbitrators decide the company would perhaps have made. The state could be forced to abandon its policy. It becomes discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as firms take cues from each other, and hedge funds fund legal actions in exchange for a cut of the awards. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the decisions enacted by parliaments is that this provision has been written – without democratic mandate, and often in a climate of total confidentiality – into trade treaties.

A Specific Example: The Whitehaven Coal Mine

Last year, activists won a great victory at the high court. The presiding officer ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine could have zero effect on national carbon targets. The Labour government then withdrew the permission the Tories had granted. Currently, this victory could be compromised by an foreign court accountable to only the corporations petitioning it.

Last August, a firm whose beneficial owners are based in the offshore financial centre lodged a claim versus the UK government. The previous week a tribunal in Washington DC was convened to consider the case.

This firm is suing the UK for the revenue it would have generated if the mine had been permitted to go ahead. We have no clear indication how much this could amount to. Which individual is serving as its counsel against the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The administration passes a law, the high court validates it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the coalmine case was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case to date, but it seems likely that he will utilise the arbitration process to challenge the restrictions the UK imposed on him subsequent to the Russian aggression. He has previously started suing another European state on these grounds, claiming a colossal sum: equivalent to half of state's annual revenue. Included in the counsel on his side? a prominent lawyer, wife of the former British prime minister.

Trade specialists contend that the EU’s hesitation in utilising seized Russian assets as guarantee for its financial support package is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over elected governments could be blocking the money Ukraine critically depends on.

Misleading Claims and Escalating Costs

Politicians promised that these scenarios could not occur. In 2014, a senior politician, promoting the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade deal upon trade deal and we have never seen a case in the past.” An expert on this topic labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “when companies begin to understand the power they now possess, they will shift their focus from the poorer states to the wealthy nations” were greeted by widespread derision.

That warning has come to pass. Recently, oil and gas and mining firms have initiated a record number of claims against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – government attempts to stop climate breakdown. Corporations have to date won $114bn by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP