Welcome, Foreign Magnates and Firms! Kindly Come and Take Legal Action Against the UK for Billions.

Can you reckon our democratic process works? Perhaps something like this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that was how it operated in the past. Those days are over.

The Advent of Offshore Courts

In the modern era, international firms, and the billionaires that control them, have the power to sue governments for the policies they pass, at secret arbitration panels made up of business advocates. Such disputes are held away from public scrutiny. Differing from national judiciaries, these bodies allow no right of appeal or legal review. You or I cannot take a case to them, just as our government, including businesses based in this country. They are open only to businesses based overseas.

When a secret court rules that a government measure may compromise the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, potentially billions.

These awards are based not on real financial harm but funds the arbitrators decide the company might otherwise have made. The state could be forced to drop the legislation. It is deterred from introducing similar legislation in that area, due to the risk of being sued.

A Mechanism Running Rampant

Record numbers of disputes are being filed, as corporations take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The outcome? National sovereignty and democratic governance are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the rulings taken by elected bodies is that this stipulation has been written – absent public approval, and typically amid an atmosphere of extreme secrecy – inside international trade agreements.

A Concrete Instance: The Whitehaven Coalmine

Twelve months ago, activists secured a significant win at the High Court. The justice determined that plans to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have no impact on climate commitments. The new government then withdrew the licence the previous administration had granted. Currently, this legal outcome faces being overturned by an offshore tribunal accountable to no one but the entities bringing the case.

In August, a firm whose ultimate owners are located in the Cayman Islands lodged a claim against the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

This firm is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. We have little idea how much this might be. Who is acting on its behalf in opposition to the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the high court supports it, then a international entity disputes it through an undemocratic private court, and a sitting MP acts on its behalf.

An Oligarch's Challenge

On the same day that the panel on the mining lawsuit was appointed, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case so far, but it is highly possible that he’ll use the tribunal to challenge the penalties the UK levied against him following the war in Ukraine. He has previously started suing Luxembourg with similar intent, claiming $16bn: an amount representing half nation's annual revenue. Part of the lawyers on his side? the wife of a former prime minister, married to the ex-UK leader.

Legal experts believe that the EU’s procrastination in using frozen state funds as guarantee for its financial support package arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments could be blocking the funds Ukraine critically depends on.

Misleading Claims and Growing Risks

Politicians promised that these scenarios could not occur. Previously, a government leader, advocating for the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this topic labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “when companies grasp the influence they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were greeted by general mockery.

That warning has come to pass. This year, oil and gas and extraction companies have lodged a record number of claims against nations across the economic spectrum, opposing – like the example of the Whitehaven project – state efforts to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP