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Can you reckon our system of government works? Perhaps similar to this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills become law. Statutes is maintained by the courts. That's it. However, that was how it once functioned. Those days are over.

The Rise of Offshore Courts

In the modern era, foreign corporations, along with the wealthy individuals behind them, can sue governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. You or I cannot take a case to them, nor can our government, including enterprises based in this country. They are open only to entities operating from foreign soil.

If a tribunal rules that a legislative action could harm the corporation’s expected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards constitute not actual losses but compensation the tribunal officials determine the company would perhaps have made. The government may have to rescind the measure. It will be discouraged from introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being brought, as corporations take cues from each other, and hedge funds fund legal actions in return for a share of the settlements. The outcome? Sovereignty and popular rule are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the choices taken by elected bodies is that this provision has been written – without democratic mandate, and frequently under conditions of extreme secrecy – into international trade agreements.

A Concrete Example: The UK Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The presiding officer determined that schemes to excavate the first deep coalmine in the UK for three decades, in northwest England, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration then withdrew the licence the Tories had issued. Currently, this success is under threat by an secret arbitration panel reporting to exclusively the companies bringing the case.

During August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings against the UK government. The previous week a dispute settlement body in Washington DC was set up to consider the case.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been permitted to go ahead. Citizens have no idea how much this sum represents. Which individual is acting on its behalf in opposition to the British government? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the national judiciary upholds it, then a foreign company challenges it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it seems likely that he will utilise the tribunal to challenge the penalties the UK imposed on him following the Russian aggression. He has filed a claim against Luxembourg with similar intent, seeking $16bn: equivalent to half of state's yearly income. Part of the legal team acting for him in that case? Cherie Blair, spouse of the ex-UK leader.

Legal experts contend that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package is due to concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over elected governments may be obstructing the money Ukraine critically depends on.

Misleading Claims and Growing Risks

The public was told that such things wouldn’t happen. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, declared: “Britain has agreed to trade agreement upon trade deal and there has not been a issue in the past.” An adviser on this matter labelled campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “as corporations grasp the authority they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were met with widespread derision.

That threat has come to pass. This year, energy and extraction companies have lodged a historic level of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP