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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. Should a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Well, that was how it operated in the past. Those days are over.

The Advent of Offshore Courts

Today, international firms, along with the oligarchs behind them, have the power to sue nation states for the laws they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are held in secret. Unlike our courts, these panels grant no right of appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. The door is open only to businesses registered abroad.

Should an arbitration panel determines that a government measure may compromise the corporation’s expected profits, it can award financial penalties of vast sums, even billions.

This compensation are based not on actual losses but money the arbitrators conclude the company would perhaps have made. The administration could be forced to drop the legislation. It becomes hesitant to enacting future policies in that area, for fear of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being initiated, as corporations learn from each other, and hedge funds fund legal actions in exchange for a cut of the takings. The consequence? Sovereignty and popular rule are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings taken by parliaments is that this provision has been written – without public consent, and typically amid conditions of extreme secrecy – into international trade agreements.

A Specific Example: The Cumbrian Coal Mine

A year ago, activists won a great victory at the high court. The judge determined that schemes to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine could have no impact on national carbon targets. The new government later cancelled the consent the Tories had issued. Today, this success faces being overturned by an secret arbitration panel answering to only the companies bringing the case.

Last August, a corporate entity whose beneficial owners reside in the Cayman Islands lodged a claim challenging the UK government. Last week a dispute settlement body in the US capital was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to commence operations. The public has no clear indication how much this could amount to. Who is serving as its counsel in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the noted patriot Geoffrey Cox. The state passes a law, the high court supports it, then a foreign company disputes it through an unaccountable private court, and a elected official acts on its behalf.

A Sanctions Challenge

Concurrently that the panel on the coal mine dispute was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce 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 after the Russian aggression. He has previously initiated proceedings against Luxembourg on these grounds, seeking $16bn: half that state's annual revenue. Included in the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts contend that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments could be blocking the funds Ukraine desperately needs.

False Assurances and Mounting Risks

We were assured that these events could not occur. Years ago, a senior politician, promoting the largest and riskiest of all such treaties, told us: “The UK has signed trade deal upon trade deal and there has not been a problem in the past.” An expert on this issue described activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Cautionary notes that “as corporations start to realise the influence they’ve been granted, they will shift their focus from the poorer states to the strong ones” were greeted by scepticism.

That warning has come to pass. This year, fossil fuel and mining firms have initiated a unprecedented number of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – state efforts to stop global warming. Firms have thus far won vast sums through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP