Hello, Foreign Magnates and Firms! Kindly Come and Litigate Against the UK for Vast Sums.
How do you reckon our system of government works? Maybe similar to this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. Statutes is maintained by the courts. Simple as that. However, that was how it used to work. No longer.
The Rise of Secret Courts
Today, overseas companies, along with the oligarchs who own them, can sue nation states for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even businesses headquartered in this country. They are open solely for entities registered abroad.
Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it may order compensation of hundreds of millions, running into billions.
These awards constitute not actual losses but funds the arbitrators determine the company might otherwise have made. The government may have to abandon its policy. It will be hesitant to passing future laws in that area, due to the risk of facing litigation.
A Process Spiralling Out of Control
Historically high figures of legal actions are being filed, as corporations learn from each other, and hedge funds bankroll lawsuits in return for a share of the awards. The result? Sovereignty and popular rule are becoming prohibitively expensive.
The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the rulings enacted by elected bodies is that this provision has been incorporated – without democratic mandate, and typically amid conditions of profound opacity – into bilateral investment treaties.
A Concrete Case: The UK Coal Mine
A year ago, a conservation group secured a significant win at the senior court. The judge found that proposals to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The incoming administration subsequently revoked the licence the previous administration had granted. Now, this success is under threat by an offshore tribunal answering to no one but the corporations bringing the case.
Last August, a firm whose final controllers are located in the Cayman Islands lodged a claim versus the UK government. The previous week a arbitration panel in Washington DC was convened to hear it.
The claimant is suing the UK for the revenue it could have earned if the mine had received permission to proceed. We have no clear indication how much this might be. What legal team is acting on its behalf challenging the state? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a foreign company disputes it through an unaccountable offshore tribunal, and a elected official works for its behalf.
The Russian Lawsuit
On the same day that the panel on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case to date, but it appears probable that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him after the war in Ukraine. He has already started suing another European state for this reason, claiming sixteen billion dollars: an amount representing half nation's yearly income. Included in the counsel acting for him in that case? the wife of a former prime minister, married to the previous PM.
Legal experts believe that the EU’s delay in using frozen oligarchs' funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments may be obstructing the money Ukraine critically depends on.
Misleading Claims and Mounting Threats
The public was told that these events were not possible. Previously, a former prime minister, promoting the biggest and most dangerous of all such treaties, declared: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this matter accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “as corporations start to realise the influence bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.
That prediction has come to pass. In the current period, oil and gas and resource corporations have initiated a unprecedented number of claims against nations both wealthy and developing, opposing – like the example of the Whitehaven project – state efforts to halt environmental catastrophe. Companies have to date won $114bn by using ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP