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How do you understand our system of government operates? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills become law. The law is upheld by the courts. End of story. However, that used to be how it once functioned. Not anymore.

The Rise of Offshore Courts

In the modern era, international firms, or the wealthy individuals behind them, have the power to sue governments for the policies they pass, at offshore tribunals made up of corporate lawyers. Such disputes are conducted in secret. Differing from national judiciaries, these panels allow no avenue for appeal or oversight by judges. The general public cannot take a case to them, just as our government, including enterprises based in this country. The door is open solely for businesses registered abroad.

If a tribunal rules that a law or policy could harm the corporation’s projected profits, it may order damages of hundreds of millions, potentially billions.

This compensation constitute not tangible damages but funds the arbitrators determine the company might otherwise have made. The state might be compelled to drop the legislation. It will be deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as companies learn from each other, and hedge funds fund legal actions for a share of a cut of the settlements. The outcome? Sovereignty and democratic governance are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the decisions enacted by parliaments is that this stipulation has been written – absent public approval, and frequently under conditions of total confidentiality – into trade treaties.

A Concrete Example: The Cumbrian Coalmine

Last year, activists secured a significant win at the high court. The presiding officer determined that proposals to open the first major coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the licence the previous administration had granted. Currently, this legal outcome is under threat by an offshore tribunal answering to only the corporations petitioning it.

During August, a firm whose final controllers are located in the offshore financial centre initiated proceedings challenging the UK government. Last week a tribunal in Washington DC was convened to hear it.

This firm is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. We have no idea how much this might be. Who is acting on its behalf challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The government passes a law, the high court supports it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the court on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case so far, but it appears probable that he’ll use the tribunal to contest the restrictions the UK imposed on him subsequent to the Russian aggression. He has already started suing another European state on these grounds, claiming a colossal sum: half that state's yearly income. Included in the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

Legal experts believe that the EU’s delay in leveraging immobilised state funds as collateral 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 trade agreement. This remarkable, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Mounting Risks

We were assured that these events could not occur. In 2014, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” A consultant on this topic labelled campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries had to worry about such legal actions. Cautionary notes that “as corporations grasp the influence bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That warning is now a reality. Recently, oil and gas and resource corporations have lodged a historic level of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Corporations have so far won vast sums through ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP