Hello, Overseas Tycoons and Corporations! Please Come and Take Legal Action Against the UK for Billions.

What is your reckon our democratic process functions? It could be something like this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. The law is upheld by the courts. End of story. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Shadow Courts

In the modern era, international firms, along with the billionaires who own them, can sue governments for the laws they pass, at secret arbitration panels composed of business advocates. These proceedings take place behind closed doors. Unlike our courts, these bodies allow no avenue for appeal or judicial review. The general public are unable to file a case to them, just as our government, including enterprises headquartered in this country. The door is open solely for corporations based overseas.

When a secret court rules that a government measure could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

This compensation represent not actual losses but funds the tribunal officials determine the company might otherwise have made. The government may have to rescind the measure. It becomes deterred from passing future laws in that area, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as companies observe each other, and private equity fund legal actions in exchange for a share of the awards. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the decisions taken by legislatures is that this provision has been incorporated – without public consent, and typically amid an atmosphere of total confidentiality – into bilateral investment treaties.

A Concrete Case: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the High Court. The presiding officer ruled that schemes to dig the first deep coalmine in the UK for three decades, in northwest England, were found to be 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 then withdrew the permission the previous administration had approved. Today, this legal outcome could be compromised by an secret arbitration panel reporting to only the corporations filing the suit.

During August, a firm whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. We have no clear indication how much this sum represents. Who is serving as its counsel against the state? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The government enacts a policy, the high court validates it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know nothing of the case at present, but it is highly possible that he will utilise the tribunal to contest the penalties the UK enacted against him subsequent to the Russian aggression. He has already started suing a small nation with similar intent, claiming $16bn: half that nation's yearly income. Included in the legal team acting for him in that case? the wife of a former prime minister, married to the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its financial support package is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over democratic administrations may be obstructing the money Ukraine urgently requires.

Misleading Claims and Growing Costs

The public was told that these events wouldn’t happen. In 2014, a government leader, promoting the largest and riskiest of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a issue in the past.” An expert on this matter labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “when companies grasp the power they now possess, they will turn their attention from the vulnerable countries to the strong ones” were met with scepticism.

That threat is now a reality. This year, energy and resource corporations have initiated a unprecedented number of cases against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – government attempts to stop climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured the majority. That represents the combined GDP