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How do you understand our political system operates? Maybe something like this. We elect MPs. They legislate on bills. If a majority is achieved, the bills pass into law. The law is upheld by the courts. End of story. Well, that was how it used to work. No longer.

The Advent of Secret Courts

Nowadays, overseas companies, along with the billionaires that control them, can sue governments for the regulations they pass, at offshore tribunals staffed by corporate lawyers. These proceedings take place behind closed doors. Unlike our courts, these tribunals allow no opportunity to appeal or legal review. You or I cannot take a case to them, and neither can our government, including businesses operating from this country. Access is granted solely for corporations based overseas.

If a tribunal rules that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of vast sums, potentially billions.

These sums represent not actual losses but compensation the panel members determine the company could potentially have made. The administration might be compelled to drop the legislation. It will be discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of cases are being initiated, as companies take cues from each other, and private equity finance suits for a share of a portion of the awards. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions made by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid an atmosphere of total confidentiality – within bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

A year ago, activists secured a significant win at the senior court. The justice determined that schemes to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The incoming administration later cancelled the consent the Tories had granted. Currently, this victory is under threat by an foreign court reporting to only the entities bringing the case.

Last August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC 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. Citizens have no idea how much this sum represents. Which individual is acting on its behalf in opposition to the British government? A sitting MP, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a international entity challenges it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it is highly possible that he may employ the arbitration process to challenge the sanctions the UK enacted against him after the war in Ukraine. He has previously initiated proceedings against another European state on these grounds, seeking a colossal sum: equivalent to half of state's annual revenue. Included in the legal team on his side? the wife of a former prime minister, wife of the previous PM.

International law scholars contend that the EU’s hesitation in utilising seized Russian assets as security for its financial support package is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over democratic administrations may be obstructing the finance Ukraine critically depends on.

Empty Promises and Escalating Costs

We were assured that these scenarios could not occur. Years ago, a government leader, promoting the biggest and most dangerous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” An adviser on this issue accused activists of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “when companies begin to understand the influence bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with scepticism.

That prediction is now a reality. This year, fossil fuel and mining firms have filed a unprecedented number of claims against nations both wealthy and developing, opposing – like the example of the Whitehaven project – state efforts to stop climate breakdown. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP