Welcome, Overseas Magnates and Corporations! Kindly Proceed and Litigate Against the UK for Billions of Pounds.

How do you reckon our democratic process operates? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. Well, that was how it once functioned. No longer.

The Emergence of Secret Arbitration Panels

In the modern era, foreign corporations, or the wealthy individuals behind them, have the power to sue governments for the laws they pass, at secret arbitration panels composed of business advocates. These proceedings take place away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or oversight by judges. The general public cannot take a case to them, nor can our government, including businesses based in this country. Access is granted exclusively to corporations based overseas.

When a secret court determines that a government measure might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions, potentially billions.

These sums are based not on actual losses but money the arbitrators conclude the company would perhaps have made. The state could be forced to abandon its policy. It becomes discouraged from passing future laws in that area, for fear of being sued.

A System Growing Exponentially

Record numbers of legal actions are being brought, as corporations observe each other, and private equity bankroll lawsuits in return for a portion of the settlements. The consequence? Democratic sovereignty and democracy are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the rulings enacted by legislatures is that this provision has been inserted – without public consent, and typically amid a climate of profound opacity – inside international trade agreements.

A Specific Example: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The judge ruled that proposals to dig the first major coal mine in the UK for a generation, in northwest England, were wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have no consequence on climate commitments. The incoming administration subsequently revoked the permission the former government had granted. Today, this success could be compromised by an offshore tribunal accountable to only the entities filing the suit.

Last August, a corporate entity whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. Last week a dispute settlement body in the United States was established to consider the case.

This firm is suing the UK for the revenue it would have generated if the mine had been permitted to commence operations. The public has little idea how much this sum represents. Which individual is serving as its counsel in opposition to the British government? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court validates it, then a foreign company contests it through an secretive arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case at present, but it appears probable that he’ll use the arbitration process to challenge the restrictions the UK levied against him following the war in Ukraine. He has already initiated proceedings against Luxembourg for this reason, claiming sixteen billion dollars: half that state's yearly income. Included in the legal team representing him there? Cherie Blair, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over sovereign states could be blocking the funds Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, promoting the largest and riskiest of all such treaties, declared: “We’ve signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this topic labelled activists of “alarmism … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “once firms start to realise the power they now possess, they will shift their focus from the poorer states to the wealthy nations” were greeted by scepticism.

That warning is now a reality. In the current period, oil and gas and resource corporations have initiated a historic level of suits against nations across the economic spectrum, challenging – similar to the Whitehaven project – government attempts to stop climate breakdown. Corporations have so far won vast sums by using ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP