Welcome, Foreign Tycoons and Firms! Please Proceed and Sue the UK for Billions of Pounds.

How do you perceive our political system functions? Perhaps along the lines of this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Legislation are enforced by the courts. That's it. Well, that’s how it once functioned. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, along with the billionaires who own them, have the power to sue governments for the policies they pass, at private courts composed of commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these bodies grant no opportunity to appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies headquartered in this country. They are open only to businesses registered abroad.

Should an arbitration panel determines that a government measure might diminish the corporation’s expected profits, it can award financial penalties of hundreds of millions, potentially billions.

These sums are based not on tangible damages but funds the tribunal officials decide the company could potentially have made. The state may have to drop the legislation. It becomes discouraged from introducing similar legislation in that area, worried about being sued.

A System Growing Exponentially

Historically high figures of cases are being filed, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the takings. The result? National sovereignty and democratic governance are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the choices taken by parliaments is that this clause has been inserted – without democratic mandate, and typically amid conditions of total confidentiality – inside international trade agreements.

A Specific Example: The Whitehaven Coalmine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The new government then withdrew the consent the former government had issued. Currently, this success faces being overturned by an secret arbitration panel reporting to exclusively the companies bringing the case.

Last August, a corporate entity whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was established to adjudicate on it.

The claimant is litigating against the UK for the profits it might have made if the mine had been allowed to proceed. Citizens have no clear indication how much this sum represents. Who is acting on its behalf in opposition to the state? An elected representative, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a international entity disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

Concurrently that the tribunal on the coalmine case was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case to date, but it is highly possible that he will utilise the ISDS mechanism to fight the sanctions the UK levied against him after the invasion of Ukraine. He has previously filed a claim against a small nation for this reason, claiming a colossal sum: an amount representing half state's annual revenue. Among the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

Legal experts argue that the EU’s delay in utilising seized state funds as security for its loan to Ukraine is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over sovereign states might be preventing the funds Ukraine urgently requires.

Misleading Claims and Growing Costs

The public was told that such things wouldn’t happen. Years ago, a senior politician, advocating for the most significant and hazardous of all these agreements, told us: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this matter described critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “once firms start to realise the influence bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That warning is now a reality. In the current period, energy and mining firms have initiated a record number of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – government attempts to stop global warming. Companies have to date won $114bn by using ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP