Welcome, International Magnates and Firms! Please Come and Sue the UK for Vast Sums.

Can you reckon our democratic process operates? Perhaps similar to this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that’s how it used to work. No longer.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals that control them, have the power to sue nation states for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or judicial review. The general public are unable to file a case to them, just as our government, including companies based in this country. Access is granted exclusively to entities based overseas.

Should an arbitration panel rules that a legislative action may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These awards are based not on tangible damages but funds the arbitrators conclude the company could potentially have made. The state might be compelled to rescind the measure. It becomes discouraged from introducing similar legislation in that area, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being initiated, as corporations take cues from each other, and private equity finance suits in exchange for a cut of the awards. The outcome? Sovereignty and democracy are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the rulings made by legislatures is that this clause has been inserted – without democratic mandate, and frequently under an atmosphere of profound opacity – inside bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

Last year, a conservation group achieved a major legal triumph at the High Court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have no consequence on our carbon budgets. The Labour government subsequently revoked the permission the previous administration had approved. Today, this victory is under threat by an secret arbitration panel accountable to only the entities filing the suit.

During August, a company whose ultimate owners reside in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a dispute settlement body in the US capital was convened to consider the case.

The claimant is litigating against the UK for the money it might have made if the mine had been permitted to commence operations. The public has no clear indication how much this could amount to. What legal team is serving as its counsel in opposition to the state? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The administration passes a law, the national judiciary supports it, then a international entity challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Case

On the same day that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case so far, but it seems likely that he will utilise the ISDS mechanism to fight the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg with similar intent, demanding a colossal sum: equivalent to half of government’s yearly income. Part of the lawyers acting for him in that case? Cherie Blair, spouse of the former British prime minister.

International law scholars contend that the EU’s procrastination in using frozen Russian assets as collateral for its financial support package arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments may be obstructing the money Ukraine desperately needs.

False Assurances and Growing Costs

We were assured that these scenarios could not occur. Previously, a senior politician, promoting the biggest and most dangerous of all these agreements, declared: “We’ve signed trade agreement upon trade deal and we have never seen a problem in the past.” An expert on this matter described critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “as corporations grasp the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were met with widespread derision.

That warning is now a reality. Recently, energy and mining firms have initiated a record number of suits against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Firms have thus far won $114bn by using ISDS, of which energy giants have secured the majority. That represents the combined GDP