Welcome, Overseas Oligarchs and Firms! Please Proceed and Litigate Against the UK for Billions.

How do you perceive our system of government functions? Maybe something like this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills pass into law. Legislation are enforced by the courts. That's it. However, that was how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

In the modern era, overseas companies, along with the billionaires who own them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are conducted behind closed doors. Unlike our courts, these tribunals provide no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses based in this country. Access is granted solely for corporations based overseas.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it can award compensation of vast sums, running into billions.

These sums represent not real financial harm but compensation the arbitrators conclude the company might otherwise have made. The administration could be forced to abandon its policy. It becomes discouraged from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being brought, as companies learn from each other, and investment funds finance suits in exchange for a share of the settlements. The result? Sovereignty and democratic governance are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the decisions made by legislatures is that this stipulation has been inserted – absent public approval, and frequently under an atmosphere of total confidentiality – within bilateral investment treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, a conservation group won a great victory at the high court. The presiding officer found that proposals to open the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no consequence on climate commitments. The new government later cancelled the licence the former government had issued. Currently, this victory could be compromised by an offshore tribunal accountable to exclusively the corporations petitioning it.

In August, a company whose beneficial owners reside in the tax haven lodged a claim against the UK government. Last week a tribunal in Washington DC was set up to hear it.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this could amount to. Who is representing it in opposition to the state? An elected representative, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The government makes a decision, the high court supports it, then a international entity contests it through an secretive private court, and a sitting MP represents its behalf.

The Russian Challenge

On the same day that the panel on the mining lawsuit was established, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case at present, but it seems likely that he will utilise the tribunal to contest the penalties the UK levied against him after the Russian aggression. He has started suing Luxembourg with similar intent, claiming a colossal sum: half that nation's yearly budget. Included in the counsel representing him there? a prominent lawyer, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in using frozen oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over sovereign states might be preventing the finance Ukraine desperately needs.

False Assurances and Growing Risks

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” A consultant on this issue described activists of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “when companies grasp the influence they’ve been granted, they will shift their focus from the weak nations to the strong ones” were greeted by general mockery.

That threat has now materialised. Recently, fossil fuel and extraction companies have filed a unprecedented number of claims against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – government attempts to halt environmental catastrophe. Corporations have thus far won vast sums by using ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP