Greetings, Foreign Tycoons and Firms! Please Come and Litigate Against the UK for Vast Sums.

Can you perceive our democratic process functions? Maybe similar to this. Citizens choose MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. That's it. However, that used to be how it used to work. No longer.

The Rise of Shadow Arbitration Panels

Nowadays, international firms, along with the oligarchs that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels staffed by business advocates. The cases are held behind closed doors. In contrast to domestic courts, these panels provide no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses based in this country. The door is open solely for entities based overseas.

If a tribunal determines that a law or policy could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions, even billions.

These awards constitute not actual losses but compensation the panel members conclude the company would perhaps have made. The state may have to drop the legislation. It becomes discouraged from enacting future policies of a similar nature, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of legal actions are being brought, as firms take cues from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The consequence? Democratic sovereignty and democracy are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the choices enacted by elected bodies is that this clause has been inserted – absent public approval, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Real-World Example: The UK Coal Mine

A year ago, a conservation group secured a significant win at the senior court. The justice found that schemes to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine would have had zero effect on national carbon targets. The incoming administration subsequently revoked the consent the Tories had issued. Today, this legal outcome faces being overturned by an foreign court answering to no one but the entities petitioning it.

In August, a corporate entity whose beneficial owners reside in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in the US capital was convened to hear it.

The claimant is suing the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have no clear indication how much this sum represents. What legal team is representing it challenging the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Challenge

Concurrently that the panel on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he will utilise the arbitration process to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has previously started suing a small nation for this reason, seeking $16bn: an amount representing half state's yearly budget. Included in the lawyers on his side? Cherie Blair, spouse of the previous PM.

International law scholars argue that the EU’s delay in utilising seized Russian assets as security for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations might be preventing the funds Ukraine critically depends on.

Empty Promises and Growing Risks

We were assured that such things were not possible. In 2014, a senior politician, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” An adviser on this issue accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Warnings that “as corporations start to realise the influence they’ve been granted, they will shift their focus from the weak nations to the developed economies” were greeted by scepticism.

That prediction has now materialised. Recently, fossil fuel and mining firms have initiated a historic level of cases against nations both wealthy and developing, opposing – similar to the Whitehaven project – state efforts to prevent climate breakdown. Firms have so far won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP