Hello, Foreign Tycoons and Companies! Please Come and Litigate Against the UK for Billions.

What is your reckon our system of government functions? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Statutes are enforced by the courts. That's it. Well, that was how it used to work. No longer.

The Emergence of Offshore Arbitration Panels

In the modern era, international firms, along with the oligarchs behind them, can sue elected administrations for the regulations they pass, at private courts staffed by business advocates. These proceedings take place behind closed doors. Differing from national judiciaries, these tribunals allow no opportunity to appeal or legal review. The general public are barred from bringing a case to them, nor can our government, including businesses based in this country. The door is open only to businesses registered abroad.

When a secret court finds that a legislative action could harm the corporation’s expected profits, it can award damages of hundreds of millions, even billions.

These awards represent not tangible damages but compensation the tribunal officials conclude the company might otherwise have made. The state could be forced to abandon its policy. It becomes deterred from introducing similar legislation along the same lines, for fear of facing litigation.

A Process Running Rampant

Historically high figures of disputes are being brought, as companies take cues from each other, and investment funds bankroll lawsuits for a share of a share of the awards. The consequence? Sovereignty and democratic governance are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions made by legislatures is that this clause has been inserted – without public consent, and typically amid a climate of extreme secrecy – within international trade agreements.

A Specific Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The judge determined that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The new government later cancelled the permission the previous administration had issued. Currently, this legal outcome faces being overturned by an foreign court answering to exclusively the corporations petitioning it.

Last August, a firm whose final controllers are based in the Cayman Islands initiated proceedings versus the UK government. Recently a dispute settlement body in Washington DC was established to hear it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. The public has no idea how much this could amount to. Who is serving as its counsel against the state? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court supports it, then a foreign company contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the coalmine case was established, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case to date, but it appears probable that he may employ the tribunal to contest the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has previously filed a claim against Luxembourg for this reason, demanding $16bn: an amount representing half nation's yearly income. Part of the legal team representing him there? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its financial support package stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the finance Ukraine critically depends on.

Empty Promises and Mounting Risks

Politicians promised that these events were not possible. Years ago, a senior politician, championing the most significant and hazardous of all such treaties, stated: “The UK has signed investment treaty upon trade deal and we have never seen a case in the past.” An adviser on this issue labelled activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries needed to fear such legal actions. Warnings that “once firms begin to understand the influence they now possess, they will shift their focus from the weak nations to the strong ones” were dismissed with general mockery.

That warning has come to pass. In the current period, oil and gas and resource corporations have filed a historic level of suits against nations rich and poor, challenging – like the example of the UK mine – state efforts to halt global warming. Firms have to date won $114bn via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP