On 30 May 2017, the University of Notre Dame hosted a debate by an entirely non-UK panel, co-organised by Volterra Fietta, Can foreign investors sue the UK for Brexit?
Ms. Suzanne Spears, partner at Volterra Fietta and professor of law at the university, provided an overview of where we are with Brexit one year following the referendum, the results of which surprised the nation and the world at large.
Suzanne listed the various areas that rendered the UK an attractive host state while a member of the EU, including the low wage pool supply of labour, free movement of capital, and passporting rights for the financial services industry. She noted that the UK has signed 110 bilateral investment treaties (BITs) and is a member of the Energy Charter Treaty (ECT). China and India are among the UK’s top investors and, at present, the UK remains the most popular destination in the EU for overseas investors.
Any claims against the UK would likely be brought for breach of the fair and equitable treatment (FET) standard for the failure to maintain a consistent legal framework. Suzanne queried whether companies, such as Japanese car manufacturer Nissan, would be able to rely on explicit or implicit commitments made to it by the UK government. She noted that, to date, the three main areas in which changes to a legislative regime have resulted in treaty claims are cases against:
- Argentina, for measures it took to deal with its financial crisis.
- Spain, for the changes to its renewable energy regime.
- Cyprus, following the bail-in of Cypriot banks.
Arguing for potential foreign investor claimants were Professor Roger P. Alford of the University of Notre Dame and Mr. Markus Burgstaller, partner at Hogan Lovells. Mr. Jeremy Sharpe, partner at Shearman & Sterling, and Mr. Luis Gonzales Garcia of Matrix Chambers, put forward arguments for the UK. None of the speakers were expressing their personal views.
Investor representatives sought to argue that their legitimate expectations of a single European market had been breached and that this gave rise to claims against the UK. Much was made of the oral assurances given by the UK government to Nissan, which was told that it would not be worse off as a result of Brexit. Particular attention was accorded to the loss of passporting rights for the financial market, the near US $7 billion in tariffs that will be payable to the EU and the increased operating costs, coupled with decreased profits, that will be suffered as a result of (a hard) Brexit.
Arguments for the state were based on both jurisdictional and substantive issues. They included:
- The decision to leave the EU cannot constitute a measure that is attributable to a state relating to an investor or an investment.
- Any failure to reach a trade deal between the UK and the EU could not constitute a measure capable of challenge because it is not attributable to the UK alone.
- BITs do not prevent a state from changing its legal framework. The UK has a sovereign right to leave the EU.
- Investors must accept that drastic changes in circumstances must result in changes in law.
- Foreign investors cannot claim for measures that affect the whole people and are not discriminatory.
- Any dispute about the imposition of tariff and barriers or customs duties may not even constitute an investment dispute at all, but rather a trade dispute.
- Passporting rights do not satisfy the definition of “assets” under a BIT.
- The UK can establish its own tariffs at any level it wishes.
- Investors could have no expectation that the UK would remain an EU member state forever not least because of the existence of Article 50 of the Treaty on the Functioning of the European Union (TFEU) which specifically contemplates that an EU member state may leave.
- Assurances such as those given to Nissan do not constitute a commitment giving rise to legitimate expectations because they were not contained in any legal document.
Dr. Martins Paparinskis, reader in public international law at UCL, commented on the session by noting that the two necessary elements of any investment treaty claim, namely attribution and breach of an obligation which would need to be established, may require “creative lawyering” in circumstances as they stand. Other issues that could be problematic include shared responsibility with the EU, and the question of whether access to a common market constitutes a protected right at all. As a few speakers noted, the situation for both potential claimants, the UK and any arbitral tribunal appointed, is not helped by the fact that the FET standard is murky and its interpretation notoriously inconsistent.
The unprecedented circumstances of Brexit are better equated to the Iranian revolution, Martins said, since they entail a change to an entire regime which affects the whole nation. Therefore, consideration of the US-Iran claims tribunal decisions might be helpful here. Brexit also raises inter-state issues and the fact that potential claimants may be requested to forfeit any potential rights to sue.
The session concluded with an anonymous poll resulting in 58% of audience members considering that foreign investor claims could not be brought against the UK for Brexit.
That is no doubt the right outcome for now. However, it is not the end of the story. What the debate usefully highlighted was the fact that foreign investors are already considering potential claims against the UK. While any such claims may be premature, that is not to say that measures implemented as a result of Brexit, once the exit actually happens, would not be capable of challenge. As an example, it is likely the UK will change the regulatory regime for the energy sector, currently dictated by the EU. This could well lead to a spate of claims under the ECT, such as those currently being brought against Spain. Another space to watch!