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How do you reckon our system of government functions? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills become law. The law is upheld by the courts. That's it. However, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Tribunals

Today, foreign corporations, along with the wealthy individuals behind them, can sue elected administrations for the laws they pass, at secret arbitration panels composed of corporate lawyers. Such disputes take place away from public scrutiny. Unlike our courts, these panels allow no avenue for appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even companies operating from this country. The door is open only to entities operating from foreign soil.

Should an arbitration panel rules that a government measure might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions, even billions.

This compensation are based not on tangible damages but funds the tribunal officials conclude the company could potentially have made. The state may have to rescind the measure. It will be discouraged from passing future laws of a similar nature, for fear of facing litigation.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as corporations observe each other, and investment funds fund legal actions for a share of a portion of the takings. The result? Democratic sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the rulings made by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under conditions of extreme secrecy – within international trade agreements.

A Real-World Example: The UK Coalmine

A year ago, activists secured a significant win at the High Court. The justice determined that proposals to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the licence the former government had granted. Currently, this legal outcome could be compromised by an secret arbitration panel answering to only the entities filing the suit.

In August, a firm whose ultimate owners reside in the tax haven filed a lawsuit challenging the UK government. Recently a arbitration panel in the US capital was convened to hear it.

The claimant is suing the UK for the money it would have generated if the mine had received permission to commence operations. We have no clear indication how much this might be. Which individual is serving as its counsel against the state? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot the MP. The administration passes a law, the domestic court upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case so far, but it appears probable that he’ll use the arbitration process to contest the sanctions the UK levied against him after the war in Ukraine. He has previously filed a claim against Luxembourg for this reason, claiming $16bn: equivalent to half of nation's yearly budget. Among the legal team on his side? a prominent lawyer, wife of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in utilising seized state funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

We were assured that these events wouldn’t happen. In 2014, a former prime minister, advocating for the largest and riskiest of all such treaties, declared: “Britain has agreed to trade agreement upon trade deal and there has not been a case in the past.” An adviser on this matter described campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations needed to fear ISDS claims. Predictions that “when companies grasp the authority they now possess, they will turn their attention from the weak nations to the strong ones” were greeted by general mockery.

That warning has now materialised. This year, fossil fuel and mining firms have filed a unprecedented number of suits against nations across the economic spectrum, opposing – like the example of the Whitehaven project – state efforts to stop global warming. Firms have to date won $114bn through ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP