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

Can you understand our system of government operates? It could be something like this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that used to be how it used to work. No longer.

The Rise of Offshore Courts

Today, overseas companies, or the wealthy individuals that control them, can sue governments for the regulations they pass, at private courts composed of business advocates. These proceedings take place away from public scrutiny. Differing from national judiciaries, these tribunals grant no right of appeal or legal review. The general public cannot take a case to them, and neither can our government, including businesses based in this country. They are open exclusively to businesses registered abroad.

If a tribunal determines that a government measure may compromise the corporation’s anticipated profits, it may order compensation of vast sums, running into billions.

These sums are based not on real financial harm but money the panel members conclude the company would perhaps have made. The administration could be forced to abandon its policy. It is deterred from introducing similar legislation in that area, worried about incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of disputes are being brought, as firms observe each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The consequence? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the rulings enacted by elected bodies is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Real-World Instance: The Cumbrian Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The presiding officer ruled that schemes to excavate the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The incoming administration subsequently revoked the licence the Tories had granted. Now, this victory could be compromised by an offshore tribunal answering to only the entities petitioning it.

In August, a corporate entity whose final controllers are based in the tax haven lodged a claim challenging the UK government. Last week a arbitration panel in the United States was convened to adjudicate on it.

The company is litigating against the UK for the money it might have made if the mine had received permission to proceed. We have little idea how much this might be. What legal team is serving as its counsel challenging the British government? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot the MP. The state makes a decision, the domestic court supports it, then a international entity contests it through an secretive offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows scarce of the case at present, but it appears probable that he will utilise the arbitration process to challenge the restrictions the UK levied against him following the war in Ukraine. He has already started suing another European state with similar intent, seeking sixteen billion dollars: an amount representing half state's annual revenue. Included in the lawyers representing him there? a prominent lawyer, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its financial support package is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over elected governments may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that these scenarios wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has not been a case in the past.” An expert on this matter described campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “once firms grasp the authority they now possess, they will turn their attention from the poorer states to the strong ones” were greeted by scepticism.

That threat is now a reality. Recently, energy and extraction companies have filed a historic level of claims against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to prevent global warming. Corporations have thus far won $114bn via ISDS, of which oil majors have secured the majority. That equates to the combined GDP