Welcome, Overseas Magnates and Corporations! Please Proceed and Sue the UK for Billions.

How do you understand our political system works? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. End of story. Yet, that used to be how it operated in the past. Those days are over.

The Emergence of Shadow Courts

Today, international firms, or the oligarchs behind them, are able to litigate against nation states for the laws they pass, at offshore tribunals staffed by business advocates. Such disputes take place away from public scrutiny. Differing from national judiciaries, these tribunals allow no opportunity to appeal or legal review. The general public are barred from bringing a case to them, and neither can our government, or even companies based in this country. The door is open exclusively to entities operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, potentially billions.

This compensation represent not actual losses but compensation the panel members conclude the company might otherwise have made. The administration may have to abandon its policy. It becomes deterred from enacting future policies in that area, due to the risk of facing litigation.

A Process Growing Exponentially

Unprecedented levels of cases are being filed, as corporations take cues from each other, and hedge funds bankroll lawsuits for a share of a portion of the settlements. The consequence? National sovereignty and democracy are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the decisions enacted by elected bodies is that this stipulation has been incorporated – without public consent, and often in conditions of total confidentiality – within trade treaties.

A Specific Instance: The UK Coal Mine

Last year, environmental campaigners won a great victory at the high court. The presiding officer found that proposals to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have had no impact on national carbon targets. The incoming administration then withdrew the consent the former government had approved. Currently, this success is under threat by an secret arbitration panel answering to no one but the corporations bringing the case.

During August, a firm whose beneficial owners are based in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a dispute settlement body in the US capital was convened to adjudicate on it.

The claimant is litigating against the UK for the profits it would have generated if the mine had been allowed to commence operations. Citizens have no idea how much this might be. What legal team is serving as its counsel in opposition to the state? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a international entity disputes it through an secretive private court, and a elected official acts on its behalf.

The Russian Case

Simultaneously that the tribunal on the mining lawsuit was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the penalties the UK imposed on him following the invasion of Ukraine. He has started suing Luxembourg with similar intent, claiming $16bn: an amount representing half government’s yearly budget. Part of the legal team on his side? a prominent lawyer, married to the former British prime minister.

Trade specialists believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a government leader, championing the biggest and most dangerous of all such treaties, declared: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this matter accused campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “when companies start to realise the influence they now possess, they will shift their focus from the vulnerable countries to the strong ones” were greeted by widespread derision.

That threat has come to pass. In the current period, energy and extraction companies have initiated a unprecedented number of suits against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – official measures to prevent global warming. Companies have so far won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP