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Can you reckon our system of government operates? It could be along the lines of this. We elect MPs. They legislate on bills. When a majority is obtained, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that was how it once functioned. Those days are over.

The Emergence of Offshore Tribunals

Today, overseas companies, along with the oligarchs who own them, can sue elected administrations for the laws they pass, at secret arbitration panels composed of business advocates. These proceedings are held away from public scrutiny. Unlike our courts, these bodies grant no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even businesses operating from this country. Access is granted exclusively to corporations based overseas.

If a tribunal determines that a legislative action could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions, even billions.

This compensation represent not real financial harm but money the tribunal officials determine the company might otherwise have made. The administration might be compelled to drop the legislation. It is discouraged from enacting future policies along the same lines, for fear of being sued.

A Process Spiralling Out of Control

Record numbers of legal actions are being brought, as corporations learn from each other, and hedge funds finance suits in exchange for a cut of the takings. The consequence? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the rulings taken by elected bodies is that this provision has been incorporated – without public consent, and typically amid a climate of profound opacity – within international trade agreements.

A Concrete Instance: The Cumbrian Coalmine

Twelve months ago, activists won a great victory at the high court. The presiding officer determined that schemes to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government then withdrew the consent the former government had approved. Currently, this success could be compromised by an secret arbitration panel reporting to only the corporations filing the suit.

Last August, a firm whose final controllers are based in the tax haven lodged a claim challenging the UK government. Last week a arbitration panel in the United States was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had received permission to go ahead. The public has no clear indication how much this sum represents. Who is acting on its behalf in opposition to the British government? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The government passes a law, the high court supports it, then a foreign company challenges it through an secretive private court, and a elected official acts on its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coalmine case was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case at present, but it is highly possible that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him subsequent to the Russian aggression. He has filed a claim against Luxembourg for this reason, demanding $16bn: half that nation's annual revenue. Among the counsel representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists believe that the EU’s delay in using frozen state funds as security for its loan to Ukraine stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these events wouldn’t happen. Previously, a government leader, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this topic described activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states needed to fear these lawsuits. Predictions that “as corporations start to realise the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with widespread derision.

That warning has come to pass. This year, fossil fuel and extraction companies have filed a historic level of cases against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – official measures to stop environmental catastrophe. Companies have to date won $114bn through ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP