Hello, Foreign Oligarchs and Corporations! Please Proceed and Litigate Against the UK for Billions.

What is your reckon our system of government operates? Perhaps something like this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. However, that used to be how it used to work. Not anymore.

The Emergence of Shadow Tribunals

In the modern era, international firms, and the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels made up of business advocates. The cases take place behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even companies based in this country. The door is open only to businesses based overseas.

Should an arbitration panel rules that a legislative action could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These awards constitute not actual losses but funds the panel members decide the company could potentially have made. The administration could be forced to rescind the measure. It becomes deterred from passing future laws in that area, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of cases are being brought, as companies observe each other, and hedge funds fund legal actions in return for a cut of the takings. The result? National sovereignty and democratic governance are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the choices made by parliaments is that this provision has been written – without public consent, and typically amid an atmosphere of total confidentiality – inside international trade agreements.

A Real-World Example: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the senior court. The judge found that plans to excavate the first major coal mine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no consequence on national carbon targets. The new government then withdrew the consent the previous administration had approved. Now, this victory is under threat by an foreign court answering to only the companies bringing the case.

Last August, a company whose final controllers are based in the tax haven initiated proceedings challenging the UK government. The previous week a tribunal in Washington DC was convened to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Who is representing it challenging the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a international entity challenges it through an unaccountable offshore tribunal, and a elected official works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coalmine case was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case at present, but it is highly possible that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously filed a claim against another European state on these grounds, demanding a colossal sum: equivalent to half of state's yearly budget. Among the counsel on his side? the wife of a former prime minister, wife of the former British prime minister.

Legal experts contend that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over sovereign states could be blocking the funds Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that such things were not possible. Previously, a former prime minister, promoting the most significant and hazardous of all investment pacts, declared: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” An expert on this topic accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “once firms begin to understand the influence they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning has now materialised. Recently, fossil fuel and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to prevent global warming. Firms have thus far won $114bn by using ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP