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

How do you reckon our political system works? Maybe something like this. We elect MPs. They legislate on bills. When a majority is secured, the bills pass into law. The law is upheld by the courts. That's it. Yet, that used to be how it operated in the past. No longer.

The Emergence of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals that control them, are able to litigate against nation states for the policies they pass, at offshore tribunals composed of corporate lawyers. The cases take place behind closed doors. In contrast to domestic courts, these panels grant no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies operating from this country. Access is granted solely for businesses based overseas.

If a tribunal rules that a government measure may compromise the corporation’s expected profits, it can award compensation of hundreds of millions, potentially billions.

This compensation represent not real financial harm but compensation the panel members conclude the company could potentially have made. The state may have to abandon its policy. It is discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A Process Growing Exponentially

Unprecedented levels of cases are being filed, as firms learn from each other, and private equity fund legal actions for a share of a share of the settlements. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the rulings taken by elected bodies is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

A year ago, a conservation group achieved a major legal triumph at the high court. The justice found that plans to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had no impact on national carbon targets. The new government then withdrew the permission the former government had granted. Today, this legal outcome is under threat by an offshore tribunal answering to only the entities filing the suit.

Last August, a firm whose final controllers are based in the Cayman Islands filed a lawsuit challenging the UK government. Last week a dispute settlement body in Washington DC was established to hear it.

This firm is suing the UK for the money it could have earned if the mine had received permission to go ahead. The public has no idea how much this might be. Who is serving as its counsel in opposition to the UK administration? A sitting MP, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the high court validates it, then a international entity contests it through an secretive offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it appears probable that he will utilise the tribunal to fight the sanctions the UK levied against him following the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Included in the counsel on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars argue that the EU’s delay in using frozen state funds as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, unaccountable authority over democratic administrations might be preventing the money Ukraine critically depends on.

False Assurances and Growing Costs

Politicians promised that these scenarios could not occur. In 2014, a senior politician, advocating for the biggest and most dangerous of all such treaties, declared: “The UK has signed trade agreement upon trade deal and there has not been a problem in the past.” An expert on this issue accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “once firms start to realise the power bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were greeted by widespread derision.

That warning has come to pass. Recently, oil and gas and resource corporations have filed a historic level of claims against nations across the economic spectrum, contesting – similar to the Whitehaven project – official measures to stop climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP