Hello, Overseas Magnates and Firms! Please Proceed and Take Legal Action Against the UK for Vast Sums.

Can you reckon our political system functions? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills become law. Legislation are enforced by the courts. End of story. However, that’s how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

Today, overseas companies, along with the billionaires who own them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. Such disputes are conducted away from public scrutiny. Unlike our courts, these bodies allow no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even companies operating from this country. Access is granted exclusively to corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy might diminish the corporation’s projected profits, it has the power to grant financial penalties of vast sums, running into billions.

These awards constitute not tangible damages but compensation the panel members decide the company might otherwise have made. The administration may have to abandon its policy. It becomes deterred from passing future laws in that area, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of cases are being initiated, as companies learn from each other, and investment funds fund legal actions for a share of a cut of the settlements. The result? National sovereignty and popular rule are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the decisions made by parliaments is that this provision has been written – without democratic mandate, and often in an atmosphere of extreme secrecy – within trade treaties.

A Specific Case: The Whitehaven Coalmine

A year ago, a conservation group secured a significant win at the senior court. The presiding officer determined that proposals to excavate the first major coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no impact on our carbon budgets. The Labour government subsequently revoked the consent the previous administration had approved. Currently, this victory faces being overturned by an offshore tribunal reporting to only the companies bringing the case.

In August, a company whose beneficial owners are based in the offshore financial centre filed a lawsuit versus the UK government. Recently a tribunal in the United States was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to go ahead. The public has little idea how much this sum represents. What legal team is acting on its behalf against the UK administration? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case at present, but it seems likely that he may employ the arbitration process to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has started suing a small nation on these grounds, claiming $16bn: an amount representing half government’s annual revenue. Included in the legal team acting for him in that case? Cherie Blair, wife of the ex-UK leader.

Trade specialists contend that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its financial support package is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states could be blocking the finance Ukraine desperately needs.

Misleading Claims and Growing Risks

The public was told that these scenarios were not possible. In 2014, a senior politician, promoting the largest and riskiest of all investment pacts, declared: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An adviser on this matter labelled campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Warnings that “when companies grasp the power bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were dismissed with scepticism.

That prediction is now a reality. This year, fossil fuel and mining firms have initiated a record number of cases against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to prevent environmental catastrophe. Corporations have thus far won $114bn via ISDS, of which energy giants have been awarded the majority. That represents the combined GDP