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

Can you reckon our system of government works? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Statutes is upheld by the courts. That's it. Well, that’s how it used to work. No longer.

The Rise of Offshore Arbitration Panels

Today, overseas companies, and the wealthy individuals who own them, can sue governments for the laws they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are conducted in secret. Unlike our courts, these panels grant no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even companies headquartered in this country. Access is granted exclusively to businesses operating from foreign soil.

When a secret court rules that a law or policy could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

These awards are based not on real financial harm but funds the arbitrators decide the company could potentially have made. The government could be forced to rescind the measure. It will be hesitant to passing future laws of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being initiated, as firms observe each other, and investment funds fund legal actions in return for a cut of the settlements. The consequence? Sovereignty and popular rule are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the rulings enacted by legislatures is that this provision has been inserted – absent public approval, and frequently under an atmosphere of total confidentiality – inside bilateral investment treaties.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, activists won a great victory at the High Court. The justice found that plans to excavate the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the consent the former government had approved. Today, this victory could be compromised by an secret arbitration panel reporting to no one but the corporations filing the suit.

Last August, a corporate entity whose beneficial owners are based in the Cayman Islands lodged a claim versus the UK government. The previous week a arbitration panel in Washington DC was established to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been allowed to commence operations. We have no idea how much this could amount to. Who is representing it against the UK administration? An elected representative, and ex-law officer in the Conservative government, the noted patriot the MP. The government enacts a policy, the national judiciary supports it, then a foreign company disputes it through an unaccountable arbitration panel, and a elected official represents its behalf.

A Sanctions Challenge

On the same day that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case so far, but it appears probable that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg for this reason, demanding sixteen billion dollars: an amount representing half nation's annual revenue. Among the counsel acting for him in that case? Cherie Blair, spouse of the previous PM.

Trade specialists argue that the EU’s procrastination in utilising seized state funds as collateral for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Empty Promises and Mounting Costs

Politicians promised that these events were not possible. Previously, a government leader, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed trade deal after trade deal and we have never seen a case in the past.” A consultant on this topic described critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies grasp the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with widespread derision.

That prediction is now a reality. This year, energy and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – government attempts to stop climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP