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How do you perceive our system of government works? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. The law are enforced by the courts. End of story. However, that’s how it once functioned. Not anymore.

The Rise of Offshore Courts

In the modern era, international firms, along with the billionaires who own them, have the power to sue governments for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or judicial review. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. The door is open solely for corporations based overseas.

If a tribunal finds that a government measure may compromise the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

These sums represent not real financial harm but money the panel members conclude the company would perhaps have made. The state could be forced to rescind the measure. It is hesitant to enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Process Running Rampant

Record numbers of cases are being brought, as firms learn from each other, and investment funds fund legal actions for a share of a portion of the settlements. The result? Sovereignty and democracy are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the rulings made by legislatures is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of profound opacity – inside international trade agreements.

A Specific Instance: The UK Coalmine

Twelve months ago, activists won a great victory at the High Court. The presiding officer ruled that schemes to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have no impact on national carbon targets. The incoming administration then withdrew the consent the previous administration had issued. Now, this victory is under threat by an foreign court accountable to no one but the companies filing the suit.

During August, a corporate entity whose ultimate owners are located in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in the United States was set up to hear it.

The company is litigating against the UK for the profits it might have made if the mine had been allowed to commence operations. Citizens have no idea how much this sum represents. Which individual is serving as its counsel challenging the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The government passes a law, the domestic court validates it, then a overseas corporation challenges it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

Concurrently that the court on the coalmine case was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case at present, but it appears probable that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against a small nation on these grounds, seeking $16bn: an amount representing half state's yearly income. Part of the lawyers representing him there? a prominent lawyer, married to the previous PM.

Trade specialists argue that the EU’s procrastination in utilising seized Russian assets as security for its financial support package is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states could be blocking the funds Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that these scenarios were not possible. Years ago, a senior politician, championing the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” A consultant on this matter described activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries should be concerned by ISDS claims. Warnings that “once firms begin to understand the influence bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were dismissed with scepticism.

That prediction has now materialised. Recently, oil and gas and extraction companies have lodged a unprecedented number of suits against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to prevent environmental catastrophe. Firms have to date won $114bn by using ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP