Welcome, Foreign Magnates and Firms! Please Come and Sue the UK for Billions of Pounds.

How do you understand our system of government operates? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that was how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

In the modern era, foreign corporations, along with the wealthy individuals behind them, can sue governments for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are held in secret. Differing from national judiciaries, these panels grant no right of appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, including enterprises based in this country. They are open solely for entities based overseas.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it can award financial penalties of vast sums, even billions.

This compensation represent not real financial harm but money the arbitrators determine the company could potentially have made. The state may have to abandon its policy. It is discouraged from passing future laws of a similar nature, for fear of being sued.

A Mechanism Running Rampant

Historically high figures of legal actions are being filed, as companies learn from each other, and private equity finance suits in return for a share of the settlements. The result? National sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can override a country's own laws and the rulings enacted by elected bodies is that this stipulation has been incorporated – absent public approval, and frequently under an atmosphere of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the high court. The presiding officer found that plans to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine would have had no consequence on national carbon targets. The Labour government later cancelled the permission the Tories had granted. Today, this legal outcome could be compromised by an secret arbitration panel answering to no one but the companies petitioning it.

Last August, a company whose beneficial owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a arbitration panel in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been permitted to commence operations. We have no idea how much this sum represents. Who is acting on its behalf in opposition to the British government? An elected representative, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The government passes a law, the domestic court validates it, then a foreign company contests it through an secretive private court, and a elected official represents its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case so far, but it appears probable that he will utilise the tribunal to challenge the restrictions the UK imposed on him after the war in Ukraine. He has already started suing a small nation for this reason, demanding $16bn: equivalent to half of government’s annual revenue. Included in the lawyers on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists argue that the EU’s delay in leveraging immobilised Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations could be blocking the finance Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that these events were not possible. Previously, a senior politician, promoting the most significant and hazardous of all such treaties, declared: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An expert on this issue labelled campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations had to worry about such legal actions. Warnings that “when companies begin to understand the power they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has now materialised. Recently, fossil fuel and mining firms have filed a record number of suits against nations rich and poor, challenging – as in the case of the Whitehaven project – official measures to prevent environmental catastrophe. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP