Can foreign investors sue for Brexit? Well, we know that the UKs governments short answer is “no” but in reality the short answer is “no one can really know yet” because the negotiations have to play out and we have to see what kind of deal emerges. But we live in uncertain times and so it’s natural that investors are looking again at their investments and how they are protected.
What we do know is that the UK has made certain promises to foreign states in bilateral investment treaties (BITs) and that these BITs contain a direct right for investors to sue the UK government in the right circumstances through investor-state arbitration, so the basic mechanics are there.
These bilateral investment treaties contain various protections including for Fair and Equitable Treatment (or the FET standard) and that operates as something of a catch all in investment treaty claims to allow investors to bring claims that don’t otherwise fall within neatly defined areas of protection like direct expropriation, for example. So there is some consensus that, given the right fact pattern and the wrong kind of Brexit, there may be grounds for a claim under the Fair and Equitable Treatment standard.
We have seen significant numbers of claims against western governments before, of course, following regulatory change in both Argentina and Spain. Might Brexit trigger the same kind of flood of claims against the UK? We will have to wait and see.
Certainly there will be hurdles to successful claims against the UK government. One big question mark, for example, is over whether Brexit could be attributed to an act of state, not least of all because the consequences in terms of regulatory tariff and passporting challenges and so on will actually be imposed from outside in effect. Then there is also the fact that Brexit was neither a fanciful or a sudden risk. The referendum was promised in 2015, held in 2016 and the final outcome won’t really be known until 2019. Further to that, of course, the UK Independence Party which campaigned for Brexit, existed for Brexit, was established as early as 1993 and saw significant electoral gains in both 2004 and 2014. And then finally the Philip Morris cases and others shows that tribunals are often willing to consider this doctrine of an acceptable margin of change. Or in other words tolerating certain government changes to legislation where they are in pursuit of the government’s judgment of the public interest. Now it will be interesting to see how that concept applies in the case of Brexit, where you’ve got not merely the government’s judgment of the public interest but instead the direct democratic expression of the public’s view as to what’s in its own interest.
What’s clear is that any claims for Brexit will be both politically and legally very controversial.
Matthew Buckle, a Senior Associate in our London office, questions whether regulatory changes following Brexit might expose the UK to claims from foreign investors and, if so, what hurdles such claims might face.