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Can you understand our system of government works? It could be along the lines of this. We elect MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Well, that used to be how it used to work. Not anymore.

The Advent of Secret Courts

Today, foreign corporations, or the wealthy individuals that control them, can sue governments for the laws they pass, at private courts made up of commercial attorneys. The cases are held behind closed doors. Unlike our courts, these bodies provide no right of appeal or legal review. You or I are barred from bringing a case to them, nor can our government, including companies operating from this country. The door is open solely for businesses registered abroad.

If a tribunal determines that a law or policy may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not actual losses but money the arbitrators conclude the company might otherwise have made. The state could be forced to abandon its policy. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being filed, as firms observe each other, and private equity fund legal actions in exchange for a share of the settlements. The outcome? Democratic sovereignty and democratic governance are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the rulings made by parliaments is that this stipulation has been inserted – without public consent, and frequently under an atmosphere of extreme secrecy – within trade treaties.

A Real-World Case: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the High Court. The justice ruled that schemes to open the first deep coalmine in the UK for three decades, in northwest England, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no consequence on national carbon targets. The Labour government subsequently revoked the permission the Tories had approved. Today, this legal outcome is under threat by an offshore tribunal answering to no one but the entities filing the suit.

Last August, a company whose ultimate owners reside in the tax haven lodged a claim challenging the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

The company is suing the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has no idea how much this might be. Who is acting on its behalf against the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The state passes a law, the high court supports it, then a international entity challenges it through an undemocratic private court, and a sitting MP works for its behalf.

The Russian Case

On the same day that the panel on the coalmine case was established, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case at present, but it is highly possible that he will utilise the ISDS mechanism to contest the sanctions the UK imposed on him following the war in Ukraine. He has started suing another European state on these grounds, seeking sixteen billion dollars: equivalent to half of government’s yearly budget. Among the lawyers representing him there? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states might be preventing the money Ukraine urgently requires.

Misleading Claims and Mounting Risks

We were assured that these scenarios wouldn’t happen. Previously, a government leader, championing the largest and riskiest of all such treaties, stated: “We’ve signed investment treaty upon trade deal and we have never seen a issue in the past.” A consultant on this topic labelled critics of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about these lawsuits. Warnings that “when companies start to realise the authority they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were met with general mockery.

That threat has now materialised. In the current period, energy and extraction companies have lodged a unprecedented number of cases against nations rich and poor, challenging – like the example of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Firms have so far won vast sums by using ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP