Hello, Overseas Tycoons and Firms! Kindly Proceed and Sue the UK for Vast Sums.

Can you reckon our democratic process operates? It could be along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Emergence of Offshore Arbitration Panels

Today, foreign corporations, and the wealthy individuals who own them, are able to litigate against governments for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these tribunals allow no avenue for appeal or judicial review. The general public are unable to file a case to them, nor can our government, including enterprises operating from this country. The door is open exclusively to entities based overseas.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

This compensation constitute not real financial harm but funds the arbitrators decide the company might otherwise have made. The administration might be compelled to abandon its policy. It will be hesitant to enacting future policies along the same lines, for fear of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of cases are being initiated, as companies take cues from each other, and hedge funds fund legal actions in return for a cut of the settlements. The consequence? National sovereignty and democracy are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings made by elected bodies is that this stipulation has been incorporated – without public consent, and often in conditions of profound opacity – into trade treaties.

A Concrete Case: The Cumbrian Coal Mine

Last year, a conservation group secured a significant win at the senior court. The justice determined that schemes to dig the first major coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine would have zero effect on climate commitments. The new government later cancelled the permission the former government had granted. Now, this success could be compromised by an offshore tribunal answering to no one but the entities petitioning it.

In August, a company whose ultimate owners are located in the Cayman Islands initiated proceedings challenging the UK government. The previous week a arbitration panel in the US capital was established to consider the case.

The claimant is litigating against the UK for the money it might have made if the mine had been allowed to go ahead. The public has no idea how much this might be. Who is representing it in opposition to the British government? An elected representative, and ex-law officer in the outgoing administration, that great patriot the MP. The state passes a law, the domestic court supports it, then a foreign company challenges it through an secretive private court, and a elected official acts on its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case at present, but it appears probable that he will utilise the ISDS mechanism to fight the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, demanding a colossal sum: an amount representing half state's yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments could be blocking the funds Ukraine urgently requires.

False Assurances and Mounting Threats

The public was told that these events wouldn’t happen. Years ago, a former prime minister, promoting the largest and riskiest of all these agreements, stated: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this topic described campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Warnings that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning has come to pass. In the current period, energy and mining firms have filed a record number of claims against nations across the economic spectrum, challenging – similar to the UK mine – state efforts to prevent environmental catastrophe. Companies have so far won $114bn through ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP