Greetings, Foreign Tycoons and Companies! Please Proceed and Take Legal Action Against the UK for Billions.

How do you reckon our system of government functions? It could be something like this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Well, that used to be how it used to work. Those days are over.

The Advent of Secret Arbitration Panels

Today, international firms, along with the oligarchs who own them, can sue elected administrations for the laws they pass, at private courts made up of corporate lawyers. Such disputes are conducted behind closed doors. Differing from national judiciaries, these tribunals grant no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises based in this country. They are open solely for entities based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

This compensation constitute not real financial harm but money the panel members conclude the company could potentially have made. The government might be compelled to rescind the measure. It will be discouraged from introducing similar legislation along the same lines, for fear of being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being initiated, as corporations learn from each other, and private equity fund legal actions in exchange for a share of the awards. The consequence? Democratic sovereignty and democracy are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the choices taken by elected bodies is that this clause has been incorporated – absent public approval, and frequently under a climate of total confidentiality – inside international trade agreements.

A Real-World Example: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the high court. The justice ruled that plans to excavate the first major coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The Labour government then withdrew the permission the former government had approved. Currently, this success faces being overturned by an foreign court accountable to no one but the companies petitioning it.

In August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was convened to consider the case.

The company is litigating against the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have no idea how much this might be. Who is acting on its behalf against the British government? A sitting MP, and former attorney-general in the Conservative government, that great patriot the MP. The government enacts a policy, the national judiciary supports it, then a international entity challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

Concurrently that the court on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know little of the case to date, but it appears probable that he’ll use the tribunal to challenge the restrictions the UK enacted against him after the war in Ukraine. He has initiated proceedings against a small nation for this reason, demanding $16bn: half that state's yearly budget. Included in the legal team representing him there? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s hesitation in utilising seized state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that such things were not possible. Previously, a senior politician, championing the largest and riskiest of all such treaties, told us: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” A consultant on this matter described critics of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear such legal actions. Predictions that “when companies start to realise the authority they now possess, they will turn their attention from the poorer states to the developed economies” were met with scepticism.

That prediction has come to pass. This year, energy and mining firms have lodged a unprecedented number of suits against nations rich and poor, opposing – as in the case of the UK mine – state efforts to prevent global warming. Companies have so far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP